tiprankstipranks
Visa: Well Positioned to Deal with Challenges
Stock Analysis & Ideas

Visa: Well Positioned to Deal with Challenges

Shares of Visa (V) were in correction territory before the Black Friday news of a new COVID variant on a day of limited volume took the Dow down 900 points.

The market was already concerned about the emerging competitive threat from Buy Now Pay Later, Visa losing its Amazon UK business, and a delay in return to normal travel leading to lower cross-border payment volume.

Despite these headwinds, I am bullish on Visa. Shares are changing hands at under $200 and are down over 20% from their 52-week high. This looks like an opportunity to buy a blue chip payments technology giant at a discounted price. Analysts view Visa as a Strong Buy, with a $277 average price target representing 41.2% upside from current levels.   

People talk about Visa getting disrupted by fintech companies, but they overlook the fact that Visa is a fintech company itself. Whether it’s blockchain technology or buy now pay later, Visa has a hand in all of the technologies that doubters say will disrupt it.

Buy Now Pay Later 

The rise of buy now pay later (also referred to as BNPL) players like Affirm (AFRM) and Square’s (SQ) Afterpay is often brought up as a threat to Visa, but in reality, Visa is already involved in BNPL.

CEO Alfred Kelly has stated that while Visa doesn’t know where BNPL will end up, “We are attacking that like we attack crypto and other things and assuming that it’s going to be successful and that we want to lean in heavily and be in the middle of it and be a driver of what’s going to potentially happen… We have a strategy of working with both third party providers as well as offering our own proprietary platform that would allow issuers to offer their own BNPL platform.” 

This seems to be the right approach and one that is underappreciated by the market. If Visa can leverage its scale and technology to offer a better or cheaper ‘white label’ BNPL solution to merchants, it could become a growth driver for the company instead of a threat.

Furthermore, it’s important to remember that BNPL doesn’t usually bypass the card network rails entirely — customers making an installment payment via a debit card is still a fee-generating transaction for Visa. As an added bonus, what was once a single transaction with one fee might now become a series of transaction as the customer pays for the item over time via multiple installments, using a Visa card for the payment each time.     

Cryptocurrency

Longer-term, I see cryptocurrency as a trend Visa will have to be more mindful of than BNPL, but even here, many investors underappreciate how involved in crypto and blockchain technology Visa is.

Even Strike, the company that made headlines with its innovative ‘Pay Me in Bitcoin’ feature, offers Visa debit cards in some areas. Whether its purchasing a CryptoPunk to explore the NFT market, partnering with various crypto platforms to offer crypto-linked credit and debit cards, developing settlement in the USDC stable coin, or investing in the seed rounds of crypto start ups, Visa is being proactive in treating the rise of cryptocurrency as an opportunity rather than a threat.

Amazon Ban, Fed Now, COVID

Let’s briefly address the other headwinds that Visa is facing. 

If Amazon (AMZN) does ban payments from Visa credit cards because of what it says are overly high fees, payments from Visa debit cards will still be accepted, so Visa will keep getting paid albeit at a slightly lower rate.

Furthermore there is the chance that the dispute between the two mega caps will be resolved, as is often the case in these situations. In any case, Morgan Stanley predicts that Amazon UK makes up about 0.1% of Visa’s business. 

We don’t know much about the outbreak of this new COVID variant yet, but even if there are some new travel bans that curtail some of Visa’s lucrative cross-border payments business, we are two years into the pandemic and I don’t foresee much of an appetite for full lockdowns that would really curtail economic activity returning at this point in time. Even if there are some sort of restrictions, people will increase their online shopping like they did during 2020. 

FedNow, an instant payments network that The Federal Reserve is planning to introduce in 2023, is a competitive threat and could disrupt the rails networks that companies like Visa and Mastercard (MA) have built. This is indeed a threat but is further out in the future and it remains to be seen how it will be implemented. The incumbent networks are well-established brands that consumers and merchants alike have used and trusted for decades.  

Wall Street’s Take

As stated above, analysts view Visa as a Strong Buy. Despite the headwinds, all 14 analysts covering Visa rate it a Buy.

Interestingly, even the lowest analyst price target of $255 is 30% higher than the current price. The highest price target of $305 indicates 55.5% upside from here. 

Conclusion

Visa is proactively addressing many of the challenges and competitive threats that some investors are worried about, and these challenges have created the opportunity to buy a blue chip company for a discounted price.

It is quietly a fintech player itself, innovating in the background and working with fintech disruptors as opposed to being disrupted by them.

Disclosure: At the time of publication, Michael Byrne did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles