Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Visa (V) Making Money?

Visa (NYSE: V) is potentially far more valuable than many suspect. For example, US payment processors generate $90 billion a year in swipe fees.

You pay a swipe fee every time you make a credit or debit card transaction. Not surprisingly, the swipe fees are a lucrative business. For instance, Bloomberg estimates US swipe fees generate $90 billion a year for payment processors.

Under those circumstances it is easy to see why Visa, MasterCard (NYSE: MA) and others will pay $6.2 billion to settle a class-action lawsuit. Retailers sued Visa to lower swipe fees, Bloomberg reports.

The case is Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court. It is reportedly being tried in the US District Court for the Eastern District of New York (Brooklyn).

How Profitable is Visa (V)?

Consequently, this lawsuit will have many investors asking “how profitable is Visa (V)? The answer provided by Stockrow is very profitable.

For example, Visa reported a gross profit of $4.338 billion for 2nd Quarter 2018. Tellingly, that gross profit was almost as large as the 2nd Quarter revenue of $5.42 billion.

Ultimately, Visa (V) is making a lot of money from swipe fees and transactions. For instance, Visa reported a net income of $2.329 billion and an operating income of $2.855 billion for 2nd Quarter 2018.

Moreover, Stockrow credits Visa with an operating cash flow of $3.637 billion and a free cash flow of $3.482 billion for 2nd Quarter 2018. These figures demonstrate Visa’s (V) business of collecting swipe fees is definitely lucrative.

Importantly, Visa (V) keeps a lot of that money. The company reported $13.388 billion in cash and short-term investments on 30 June 2018. In detail, Visa reported $9.992 billion in cash and equivalents and $3.396 billion in short-term investments for 2nd Quarter.

Visa (V) is the World’s Largest Payment Platform

Visa (V) is the world’s largest payment platform. To demonstrate Statista reports there were 755 million Visa cards in circulation worldwide in 1st Quarter 2018. In particular, there were 342 million Visa cards in the United States in 1st Quarter 2018.

In contrast Statista estimates there were 244 million PayPal (NASDAQ: PYPL) accounts worldwide in 2nd Quarter 2018. Correspondingly, Statista estimates there were 127 million Apple Pay users worldwide in 2017. Importantly, many of these Apple Pay users are making payments with Visa through Apple Pay.

Therefore, Visa (V) has a vast advantage over any potential competitor. Its platform is almost six times as large as Apple Pay and over three times as large as PayPal’s.

The only payment platform with more users than Visa’s is Tencent Holdings’ WeChat Pay. To demonstrate, Statista estimates WeChat Pay had 1.04 billion users in 2nd Quarter 2018.  Significantly, the other big mobile payment solution Ant Financial’s Alipay had 400 million users in August 2017, Statista calculates.

The Real Value at Visa (V)

Obviously, the real value at Visa is the size and reach of its payments platform. If Visa (V) can replicate its success in the US elsewhere it can generate vast amounts of money.

There are vast opportunities Visa can tap in emerging nations. Pay as You (PAYG) systems that utilize digital currencies such as M-pesa can reach even the poorest individuals.

A number of companies are using M-pesa-based payment plans to sell goods to people in Africa. Obviously, a PAYG or M-pesa credit card is an opportunity Visa (V) must pursue.

Cryptocurrencies, which are theoretically more versatile than M-Presa, might be even more lucrative. Pundi-X (NPXS) and DASH (DASH) are deploying merchant point of sale (POS) systems that can be integrated with Visa’s platform in South America.

The greatest opportunities for Visa will be central-bank issued cryptocurrencies and instant conversion of cryptocurrencies. Unfortunately, no central bank cryptocurrencies exist yet, though the People’s Bank of China is working on one. On the other hand, Uphold claims to convert 35 cryptocurrencies in 180 countries.

It must be remembered that digital currency is just one lucrative opportunity Visa can take advantage of. Other opportunities technology offers Visa (V) include smart escrow, smartphone based banking, remittances, Forex, currency conversion, and blockchain based ecommerce.

Therefore, the real value at Visa is all the future opportunities today’s world presents it. No other company is in a better position to cash in on the consumer explosion in the emerging world.

Visa (V) will grow with the Middle Class

Interestingly, Visa’s history might repeat itself in emerging markets. Visa (V) grew big by offering consumer credit to America’s middle class in the 20th Century. Visa can grow bigger by offering consumer credit to the emerging world’s middle classes.

The middle class is growing fast in some emerging markets. For example, Livemint estimates India’s middle class grew from 45.4 million people in 2004-2005 to 108.5 million in 2011-2012.

Tellingly, India’s lower middle class grew from 237.8 million to 446.3 million during the same period. More importantly, India’s upper middle class grew from 21 million to 49.5 million people India’s affluent increased from 7.5 million 22.9 million people.

Obviously, all those middle class people are potential Visa customers. In particular, the affluent will want gold cars, the upper middle class will want credit cards, and the lower middle class will use gift cards. Visa offers all of those products. More importantly, Visa can start collecting swipe fees from all those Indians.

Is Visa (V) stock Undervalued?

I think Visa (V) stock was undervalued at $149.61 a share on 25 September 2018 because of its potential.

Moreover, Visa (V) is a good dividend stock. For example its shareholders received a 21¢ dividend on 4 September 2018. That dividend grew from 14¢ in 2016, to 16.5¢ and 19.5¢ in 2017 to 21¢ in 2018. Therefore, Visa (V) is capable of significant dividend growth.

Visa shareholders enjoyed a dividend yield of .56%, an annualized payout of 84¢ and a payout ratio of 18.2% on 25 September 2018. Importantly, Visa has reported nine straight years of dividend growth.

To put it differently, if you are looking for a growth stock that pays off right now investigate Visa (NYSE: V). Visa (V) is obviously, a moneymaker with a vast amount of growth potential all over the world.