Visa Stock Forecast & Analysis: Is It A Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Visa stock forecast will help you decide if the stock is a buy or not. 

Visa Stock Forecast: Background

Visa is a financial services corporation that facilitates electronic fund transfers throughout the world via its credit, debit, and prepaid cards.

It began as a credit card program within Bank of America in 1958 but became its own company and was renamed Visa in 1976.

Visa does not issue cards or extend lines of credit; it simply provides financial institutions with Visa-branded payment products so they can offer credit, debit, and prepaid cash access to their customers.

Visa is the network and institutions operate on top of it.

Visa Stock Forecast: Investment Potential

#1. Fintech Disruption

At first glance, the rise of financial technology might seem bearish for Visa, but it’s quite the contrary if you trust in Visa’s leadership.

Instead of resisting change, the company is embracing it and recently launched “Visa Partner” to help fintech startups “unleash their potential.”

Remember, Visa is the network; it is layer zero. Many of these fintech companies operate on layer one or two and still require a foundation.

Speaking of layer zero — Visa has plugged into the Ethereum blockchain to bridge the gap between digital and traditional fiat currencies.

Visa’s willingness to adopt new technologies, like crypto, makes us bullish on the stock.

#2. Duopoly with MasterCard

Having a duopoly also helps — Visa and MasterCard essentially control the global payments processing market.

Visa and MasterCard were essentially spin offs from American banking unions. Since these banks controlled the money, they controlled which companies issued the credit and debit cards.

And of course, they chose Visa and MasterCard.

A combination of first-mover advantage, contract restrictions, and network effects contributed to Visa’s duopoly that still exists today.

These factors compounded and faced little competition for decades.

#3. Cross-Border Volume Total

As pointed out by Daren Fonda, cross-border travel transactions are crucial for Visa’s profit recovery.

This revenue stream has been decimated by the slower-than-expected global recovery.

Fonda added tear Visa earns approximately 20 basis points on domestic transactions versus 100 to 200 basis points on cross-border travel due to currency conversion fees and other charges.

Expect an uptick in revenue as the global economy begins to reopen.

Visa Stock Forecast: Moat

We believe the following describes Visa’s ability to defend its market share:

Duopoly + War Chest

As previously discussed, Visa’s duopoly is a combination of its first-mover advantage and critical mass network effects.

Visa is a daunting incumbent that keeps its ear to the grindstone and embraces new technology.

Making the necessary partnerships and acquisitions in the digital wallet and crypto space is a testament to the company’s leadership and foresight.

In addition, its established duopoly built its war chest that makes the acquisitions possible, at least when the DOJ doesn’t get involved.

Visa Stock Analysis: Q1 Earnings Report

Visa reported Q1 2022 earnings on January 27, 2022 — here’s what you need to know:

  • Net Revenues: $7.1 billion, up 24% year-over-year
  • Earnings Per Share: $1.83, up 29% year-over-year
  • Net Income: $4.0 billion, up 27% year-over-year

Visa’s revenue, net income, and EPS all grew 24% or higher compared to the same period last year. 

The company’s CEO Alfred F. Kelly attributed the quarter’s performance to the strength of Visa’s network, the growth of eCommerce, better than expected progress in the return of cross-border travel, and a continuation of the recovery.

Here are some other key quarterly metrics for Visa:

  • Payments Volume: +20%
  • Cross-Border Volume Excluding Intra-Europe +51%
  • Cross-Border Volume Total: +40%
  • Processed Transactions: +21%

Visa charges an arm and a leg for those cross-border transactions — it’s one of their main revenue drivers. 

Shares surged 5% following the strong earning report. 

Visa Stock Forecast: The Competition

Visa and MasterCard enjoy a healthy duopoly on payments, but there are plenty of companies coming for them. Here are Visa’s top competitors:

  • MasterCard (MA)
  • Block (SQ)
  • PayPal (PYPL)
  • American Express (AMEX)
  • Discover (DFS)
  • Capital One
  • Stripe

While these companies compete with one another, some of them have invested or partnered with one another.

For example, Visa invested in Square while it was a private company. Years later, the two companies partnered to launch the Cash Card.

The Venmo Credit Card is also powered by Visa. As you can see, the fintech ecosystem is convoluted.

Visa Stock Forecast: The Risks

#1. Fintech & Digital Wallets

Companies like Square and PayPal are creating new payment methods that could impact Visa’s market share.

Square’s Cash App and PayPal’s Venmo are digital wallets that enable peer-to-peer transactions.

The functionality of Cash App and Venmo improve by the day. They have features like Q.R. Coded Checkout, Buy Now Pay Later, and the ability to buy, sell, and hold crypto.

Square has even closed the payments loop: a customer can use his or her Cash App to buy a coffee at a cafe that uses Square’s point-of-sale hardware and software.

These wallets have Super App potential that will threaten Visa if it doesn’t embrace this wave of financial innovation.

#2. New Debit Regulations

Regulators are trying to open the market to more independent debit networks for online transactions, which would loosen Visa’s current grip on the debit business.

Current Federal rules require at least two unaffiliated debit networks to be enabled on a debit card. The Fed’s proposal claims that card issuers (banks) don’t enable online transactions for independent networks.

More competition in this space may result in a better long-term product or service from Visa, but could affect its bottom line in the short-term.

Visa Stock Allocation in Your Portfolio

Determining whether a stock is over- or undervalued is next to impossible — Visa won’t be any different.

A stock can have a P/E ratio of 500x and be undervalued. On the other hand, a stock can have a P/E ratio of 5x and be overvalued.

Regardless, you can ask yourself the following questions to measure your conviction, or lack thereof, on Visa stock:

  • Will Visa thoughtfully embrace disruptive financial technology?
  • Is Visa on the right side of digitization and crypto?
  • Will intervention from the Department of Justice affect Visa’s ability to acquire promising companies?
  • Has the yet-to-be-seen global reopening been priced into the stock yet?
  • Is Visa a better investment than MasterCard?

Visa Stock Forecast: FAQs

Is Visa stock a buy?

Visa stock is a buy if you believe it will successfully navigate the changing payments ecosystem. Visa has been the dominant player in the global payments space for decades.

Is Visa stock better than MasterCard?

Visa has better profitability and the potential for greater dividends compared to MasterCard. However, these are very similar companies with essentially the same exact business model.

Is Visa overvalued?

Investors claiming that Visa is overvalued may be pointing to its price-to-sales ratio, which has reached an all-time high. It’s currently hovering around 25x compared to its 5-year average of 16x.

Bottom Line: Visa Stock Forecast

Visa appears to be ready for the next iteration of the payments industry. While there might be better upside elsewhere, Visa is a conglomerate that won’t be bending the knee anytime soon.

Keep reading: 

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Visa (V) stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.