Visa (NYSE:V) has seen its stock rise steadily over the last few months as various initiatives and innovations by the company have inspired confidence among investors. Visa’s quarterly report earlier this month indicated a strong performance and provided a positive outlook for the company as well as competitors MasterCard (NYSE:MA) and American Express (NYSE:AXP). Accordingly we have revised our price estimate for Visa’s stock to $126, a premium of 8% to the current market price. Below we discuss the main factors which influenced our forecast revisions.
- How Steep Increase In Profit Margins Has Driven Visa’s EPS Growth
- What Is Visa’s Revenue & Expense Breakdown?
- How Much Can Visa’s Revenue Grow In The Next Five Years?
- What Is Visa’s Fundamental Value Based On Expected 2016 Results?
- How Has Visa’s Revenue Composition Changed In The Last Five Years?
- How Much Has Visa’s Revenue & Gross Profit Grown In The Last Five Years?
Smartphone sales have shot through the roof over the last few years and have opened new avenues for businesses across industries. Developments in mobile payment Near Field Communication (NFC) technology and e-commerce are making the retail sector much more customer-friendly.
Visa is in a prime position to capitalize on these advancements with collaborations with Google Wallet and Isis, pioneers in mobile phone payments. (See Visa Partners With Vodafone To Offer Mobile Payment Service) Visa plans to launch V.me, its mobile wallet service, in Europe later this year, and we expect a strong reception. This should lead to a boost in transaction volumes.
Strong Performance in Developing Markets
Emerging economies in the Asia-Pacific and Latin America regions have been growing steadily over the last few years, and the booming markets provide a huge potential for companies such as Visa. Latin America saw an increase of 25% in payments volume processed by Visa and a similar result was observed across the Asia-Pacific region. The company’s global reputation provides a strong opportunity to penetrate these markets, and we expect growth in these economies to fuel an increase in transaction volumes throughout the Trefis forecast period.
Olympics to Boost 2012 Numbers
Visa is the official payment service provider of the 2012 Olympic Games, to be held in London this summer. The company has launched a massive marketing campaign to promote the event and are set to gain from the worldwide event with over 140,000 contact-less terminals set up across the U.K. We expect cross-border transactions to be boosted significantly over the summer as the Olympics lead to a massive increase in tourism. Merchandise sales will also increase, leading to higher transactions as sports fans across the world support their countries. International fees account for 20% of our price estimate for Visa.
The per-transaction fees charged by Visa were reduced with the Durbin Amendment to the Dodd-Frank financial overhaul bill last year. (See Visa’s Intl. Growth Helps Offset U.S. Regulatory Concerns) Debit card interchange fees were reduced to 21 cents per transaction, and similar restrictions were imposed on other fees such as authorization and settlement fees. A reduction in fees will lead to a decline in revenues generated, but we expect this to be offset by increased volumes.
Visa has increased its spending on incentives offered to banks, customers and issuers in the U.S. The region saw a 6% increase in payment volumes last quarter. We expect the investment to pay off with continued growth in volumes over the next few months.