The payment-card giant is a classic value investment because everybody uses its’ products but nobody thinks about them. Visa has created the global financial products ecosystem that every other company including; MasterCard, Apple, Alphabet, Ant Financial and PayPal wants. More importantly that ecosystem is growing dramatically.
Here are few numbers that expose the size and scope of Visa’s payment ecosystem:
There were an estimated 3.1 billion Visa cards worldwide on December 31, 2016, Visa estimated.
Those cards were supported by 16,600 financial institutions worldwide on December 31, 2016.
Visa cards were accepted at 2.6 million ATMs worldwide on September 30, 2016.
Visa was accepted by an estimated 44 million businesses worldwide on September 30, 3016.
There were 141 billion Visa transactions in 2016.
Visa’s network was handling 65,000 transaction messages per second in August 2016.
Visa reported a total transaction volume of $8.9 trillion (€7.56 trillion) on December 31, 2016.
Visa reported a payment volume of $6.3 trillion (€5.35 trillion) on December 31, 2016.
Visa was processing payments in 160 currencies on December 31, 2016.
Source: Visa Inc. Facts & Figures January 2017
Is Visa Making Money?
As you can see Visa has the best payments network in the known universe, but value investors will ask is it making money? The answer to that question provided by our friends at ycharts is yes.
Here’s some proof that Visa is making a lot of money:
$17.76 billion (€15.08 billion) in revenues on June 30, 2017. This was a $930 million (€789.87 million) increase over March 2016; when Visa reported $16.83 billion (€14.29 billion) in revenues, and a $3.48 billion increase from June 2016 – when Visa reported $14.39 billion (€12.29 billion) in revenues.
$6.49 billion (€5.51 billion) in net income on June 30, 2017. This was a $1.647 billion (€1.40 billion) increase over March 2017; when Visa reported $4.843 billion (€4.11 billion) in net income. It was also a $918 million (€918 million) increase over June 2016; when V reported a net income of $5.572 billion (€4.73 billion).
A profit margin of 45.1% on June 30, 3017.
A free cash flow of $3.342 billion (€2.90 billion) on June 30, 2017. Compare that to $250 million (€212.33 million) in March 2017 and $171 million (€145.23 million) June 2016. If these numbers are accurate this company added $3.172 billion (€2.69 billion) in free cash flow in 12 months.
Assets of $64 billion (€54.36 billion) on June 30, 3017.
Cash and short-term investments of $10.19 billion (€8.65 billion) on June 30, 2017.
$830 million (€704.94 million) in cash from investing on June 30, 2017.
$8.893 billion (€7.55 billion) in cash from operations on June 30, 2017. This number showed some of the biggest increases; it was $5.659 billion (€4.81 billion) in March 2017 and $4.96 billion (€4.21 billion) in June 2016.
A market capitalization of $230.71 billion (€195.95 billion) on August 4, 2017.
An enterprise value of $241.94 billion (€205.48 billion) on August 4, 2017.
If you are looking for a stock that gives you a lot of “bang for your buck” Visa is a good choice. This company keeps demonstrating a great capacity for generating a lot of cash from its operations. More importantly it is keeping that cash.
The cash is not yet being shared with investors in the form a big dividend. Visa is scheduled to pay a 16.5¢ (€0.14) dividend on August 16, 2017. That dividend is growing it was 14¢ (€0.12) in 2016 and 12¢ (€.10) in 2015. That makes Visa a good dividend growth stock for the future.
Those looking for a straight growth stock will be pleased with Visa; it reported a return on equity of 24.6% on June 2016. My conclusion is that this stock is fairly valued at the $100.89 (€85.69) share price, reported on August 4, 2017. I also think there’s a lot of potential for future growth at Visa.
Why Visa has more Growth Potential than you think
Visa has much more growth potential than many observers suspect because of ongoing advances in financial technology. Progress in fintech is creating new revenue streams for Visa that some investors have not spotted yet.
The first opportunity is mobile digital wallets such as Apple Pay. Apple Pay claimed that its transaction volume increased by 500% between 2016 and 2017, 9 to 5 Mac reported. This is a big opportunity for Visa because users can make Visa credit and debit card payments through solutions like Android Pay and Apple Pay.
Making payment easier and more convenient makes people more likely to use Visa and might lead to more transaction fees. Even bigger opportunities exist in China; where Alipay reported having 400 million registered users in February 2017, Expanded Ramblings reported. Ant Financial’s Alipay also reported having 100 million daily active users in December 2016 and 270 million monthly active users in April 2015. There were 175 million Alipay transactions a day in August 2016.
How Visa can Cash in on Cryptocurrencies
One altcoin wallet alone; Coinbase, claims to have added one million new users in 30 days between May and June 2017, Coin Telegraph reported. As of June 29, 2017; Coinbase had 27.5 million wallets and supported 46,000 bitcoin merchants.
This is a huge opportunity for Visa because it is possible to buy and sell cryptocurrencies via credit and debit cards. Almost every altcoin exchange, wallet and mining service; including Coinbase, accepts Visa payments. That’s a potentially huge market because the estimated value of all of the world’s cryptocurrency was $95 billion on July 24, 2017, Coin Telegraph reported.
An even greater opportunity is bitcoin Visas like those offered by Bitpay. Such cards enable cryptocurrency users to make transactions at brick and mortar establishments and online. They can allow people in countries plagued by hyperinflation or rigid currency controls to make online purchases and to easily move money in and out of the country.
Another Great Opportunity for Visa from Altcoins
This allows Visa to make a small profit off of every altcoin transaction without taking the risk of directly investing in cryptocurrency. To add icing to the cake, even more revenue from altcoins might be right around the corner for Visa.
A Singapore unicorn called TenX claims to have created a Visa card that can automatically convert cryptocurrencies; such as bitcoin and ethereum, into fiat currencies such as the US dollar. A TenX Youtube video shows Cofounder Paul Kitti using a digital wallet to pay for burgers at McDonalds with Dash (Darkcoin) a lesser altcoin.
If TenX’s claims are true, there might be tens or hundreds of thousands of new Visa transactions in developing nations like China and unstable countries like Venezuela. Bitcoin has become a very popular hedge against inflation in China; a development that might be repeated with ethereum and in Latin America and possibly Europe. More business might be possible in Europe and the United States, particularly if more holes in the security of solutions like Apple Pay and Android Pay are exposed.
If you are looking for a great Widows and Orphans Stock that has a lot of potential for the future check out Visa. The term “Widows and Orphans Stock” is American financial industry slang for an equity so safe it can be sold to people who need a reliable source of income. It is one value investment with tremendous growth opportunities in front of it.
A slightly different version of this article previously appeared at Market Mad House.