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Should You Buy Shares of Visa?

Thursday, March 20, 2008 | Jason Jovine

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I've recently been asked by friends what I think about buying shares in Visa (SYM: V). The credit card processor went public yesterday on the New York Stock Exchange at $44 per share.  (It's also been one of the most popular questions asked by www.TickerHound.com members.)
Let’s look at what happened to one of its rivals, MasterCard (SYM: MA), which went public in May 2006 at $39 per share:


 
Since going public, MasterCard has been as high as almost $228 per share, for a return of almost 500%!

Not too shabby, especially in this market.

More about VISA

Visa processed 44 billion transactions in 2006; nearly double MasterCard’s 23.4 billion. Visa has more market share than MasterCard, American Express, and Discover combined. Take a look:


 
As most of you know, people are using fiat currency less and less, and are turning to credit cards more and more. Take a look at the expected CAGR (Compound Annual Growth Rate) for credit cards until 2012:


 
Visa is looking to raise money to take advantage of growth opportunities in the market place. Here a direct quote from Visa:

“We believe there is a significant opportunity to expand the usage of our products and services in high growth geographies in which we currently have a presence, such as the Asia Pacific, Latin America and Caribbean, and Central and Eastern Europe, Middle East and Africa regions.”

Credit cards are certainly here to stay, and Visa is leading the pack. However, not every credit card company’s IPO turns to gold.

Look what happened after Discover Card (SYM: DFS) went public:


 
After Morgan Stanley spun off Discover Financial Services, it has been as low as $10.94 per share, about 66% off of its high of $32.17.

Will Visa be more like MasterCard or Discover?

I think Visa will be more like MasterCard, and will make a great investment over the long term. The republican congress under the Bush administration has passed very favorable rules for the credit card companies, some of which include making it a lot harder for “Average Joe” citizens to declare bankruptcy.

This, of course, was a gift to credit card companies, such as Visa, because now you have to pay them back. Of course, it stinks for Americans who fall on hard times. (Most bankruptcies are due to a catastrophic health crisis, but, as usual, the rich get richer and - you know the rest.)

(Only big Wall Street firms get bailed out when they fall on hard times, not average American citizens).

The bottom line: Visa is a solid company and it's a buy. The question is at what price. I will be watching it closely in this turbulent market, and so should you. I will keep you posted.

Until the next time...

(Please let us know what you think about Jason Jovine's article.)
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Jason Jovine
Contributing Editor
The Tycoon Report




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10 Comments

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  1. Michael (1 year ago) Is this Spam?

    A short, precise, succinct, coherent comment on the merits of looking at the feasibility of Visa Share Prices being a buy. Market share is an important ingredient in making the calculation. Jovine, as usual does not mince words. I found the article interesting and enlightening and will be pleased to carry it in my website

    Well done



    Michael

    www.eFinanceSector.com

  2. Ethan R (1 year ago) Is this Spam?

    Hi Jason. Excellent article, and so far Visa looks like a winner! May I add just one comment to your statement, "Most bankruptcies are due to a catastrophic health crisis, but, as usual, the rich get richer and - you know the rest"?

    Yes, bankruptcies are often due to a catastrophic health crisis, but mostly they happen to those people who have failed to save and invest money in an emergency fund of at least 3-6 months, and who are up to their eyeballs in debt. If you have no debt and a good emergency fund in place, when the hard times come you may struggle, but you probably won't have to declare bankruptcy.

  3. jester112358 (1 year ago) Is this Spam?

    VISA also has pending lawsuits against it by American Express, Discover etc for which it has set aside several billion $ for adverse sentiments. This will really hurt the earnings.



    By-the-way VISA makes money whether consumers default on their payments or not. It makes money by merchant/bank transaction fees. The banks issuing the cards suffer when defaults occur. You must understand this elementary point! Also, the banks which own VISA are offering to sell you shares in this IPO so they can recapitialize and avoid another "credit event" like BSC. So, if money center banks are selling do you want to be buying? (Can you spell main stream "sucker"?)



    However, when consumers cut back on purchases (say during the unlikely event of a "recession" or when they are busy paying down debt (like now), Transaction profits decrease. And, of course, if their paying clients, merchants and banks go bankrupt (which, kind reader, really shouldn't happen in this wonderful economic climate), VISAs profits and mastercard's decrease.



    So, caveat emptor.



    Disclosure: I wouldn't touch anything in the banking sector with a ten-foot pole, much less when I hold good old swiss francs, mining, minerals, and oil stocks (that's what you readers should be holding in your "cash" accounts).



    At least wait until C or WM has an "insolvency" event before you do anything-it won't be long.

  4. Tom (1 year ago) Is this Spam?

    Jason, perhaps you should do a little research into the business of the companies you write about, as it appears everyone is now confused, based on some of the comments below. Visa is just a processor of credit card and debit card transactions, not a lender. The bankruptcy rule changes have very little, if any, relevancy here. This makes the bullish case for Visa even stronger, of course, but I think you owe your readers a little more effort in the future.

  5. John M (1 year ago) Is this Spam?

    Good Morning Jason,



    Jason wrote:

    As most of you know, people are using fiat currency less and less, and are turning to credit cards more and more.



    John replies:

    I don't have a clue what the FED instructed you to say defining a difference between paper currency and plastic currency, but both are FIAT. Please review each link below to learn the truth about FIAT currency and the scam the FED cartel has foisted on America for the last 95 years. You're not to blame for not knowing unless you fail to utilize the information I present below.



    1) http://www.youtube.com/watch?v=F3TAh1gy6rc&feature=related

    2) http://www.youtube.com/watch?v=09oi0g_OKF4&feature=related

    3) http://www.youtube.com/watch?v=Ja9YlQ2wXnM&feature=related

    4) http://www.youtube.com/watch?v=qqSjJ0Q5eTc&feature=related

    5) http://www.youtube.com/watch?v=mJCJ1w60Ivc&feature=related

    6) http://www.youtube.com/watch?v=qTgo_UOnu0E&feature=related

    7) http://www.youtube.com/watch?v=K1jBTGOJFh4&feature=related



    There isn't even any boring reading Jason. Each one of these takes about ten minutes. You could do one a day at lunch for a week and know the difference between FIAT paper currency and FIAT plastic currency.



    John Mahler

  6. Tom (1 year ago) Is this Spam?

    Good article Jason, however I do have a concern. I think that there is a difference between v & ma. I do not think that ma has any vulnerability with regard to people filing for bankruptcy. MA is strictly a transaction processor, but V is vulnerable in this area. I would wait until all of the hoopla is over before buying this one.

  7. phil (1 year ago) Is this Spam?

    Excellent article. The term "fiat currency" defines ongoing trends in domestic and expanding global markets. We now have TV ads in which users of paper money are portrayed as losers. These ads, by the way, are produced by Visa. My advice: own V. I do for my own accounts.

  8. Christine (1 year ago) Is this Spam?

    Your website seems to be user friendly, you see I am getting used to the world of computers. Looking forward to our communications. Christine

  9. conrad c (1 year ago) Is this Spam?

    what impact is the subprime meltdown and also the lost of equity value of homeowners to the growth ov

    visa?

  10. Gabriel (1 year ago) Is this Spam?

    I can't see how Visa could be involved with a cardholder bankruptcy since the Bank gives the credit.
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