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Research Analyst

Stock of the week: Visa

Stock of the week: Visa

Have you ever paid for something without using cash? Do you have a piece of plastic that has 16 digits on it? Ever heard of payWave? Then you've probably contributed to the bottom line of this week's stock of the week: Visa

Visa's Business

I love businesses that clip the ticket. Visa is the definition of clipping the ticket. They provide most of the technological infrastructure to support the payments when you use tap /swipe your plastic card at an EFTPOS machine or buy something online.

When you get a card from your bank with "Visa" on it, they don't set the fees associated with that card. Nor do they set the interest rates or any overdraft fees. Visa has an arrangement with your bank to take a flat $0.000095 on a $100 USD transaction. They also make money by reconciling those transactions through their settlement infrastructure system. Here is some crazy stats from you (provided by Braintree Payments)

  • 6.3 Million businesses around the world accept Visa
  • $1.3 Trillion were purchased with Visa-branded cards
  • Visa processes around 100 Million transactions per day
  • There are over 500 Million cards with the word "Visa" on it

Visa's Catalysts:

I believe the primary catalyst for Visa is the war on cash. In 2013, Mastercard released a white paper stating that 85% of the world's transactions were still dealt with in physical currency. That means at 2013; there was an addressable market of 85% of transactions that could be handled with a Visa card. I'm sure it is a lot lower now, considering its 2020.

Another catalyst is the Coronavirus. With people being stuck at home, they are forced to use alternative payment methods such as credit and debit cards. Even with the United States being primarily a cash society, people have no choice but to use credit/debit cards. This increase in volume may show up in the next earnings report.

Visa's Risks:

This is a relatively crowded space – with Mastercard, American Express, Paypal, and Square all participating. There is a possibility that these companies outperform Visa. (However, there is an easy solution to this – Own them all ?)

There is also a risk that the war on cash takes a very long time to come to fruition. In that case, the stock may not outperform the broader market.

Visa: Conclusion

Visa currently trades at $195, just above what it traded at the start of the year. Like Facebook, Visa is one of those stocks that have the power to excel regardless of the macroeconomic environment. Again – I can't recommend stocks. However, I can say – I own Visa.

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