How Visa Would Be Affected If Bitcoin Adoption Takes 5% Of Its Transaction Volume

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Upside
285
Market
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Trefis
V: Visa logo
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Visa

The growing popularity of Bitcoin and other cryptocurrencies over recent months has made the widespread adoption of blockchain technology for settling financial transactions a very real possibility. Given these circumstances, it makes sense to understand how the largest payment companies in the world would be affected if blockchain-related settlement services eat into their transaction volumes.

We have created a series of interactive models which detail how a 5% reduction in total transaction volume for the three largest payment processing companies in the world – Visa (V), Mastercard (MA) and American Express (AXP) – would affect their valuations. This note focuses on the interactive model for Visa. You can modify assumptions such as earnings multiples, total transaction volumes, fees as a percentage of transaction volumes and others to see how sensitive Visa’s shares are to its transaction volumes.

We maintain a $100 price estimate for Visa’s shares, which is about 15% below the current market price.

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As detailed in the chart above, a decrease in Visa’s transaction volume by 5% could reduce its 2018 EPS estimate by $0.20. Using Visa’s current forward P/E ratio of 29, this represents a nearly $6 downside to the bank’s share price – or a downside of about 5%. This makes sense, given the fact that transaction-related revenues constitute more than 90% of Visa’s total revenues (with service fees being the only revenue stream not directly dependent on transaction volume).

The higher sensitivity of Visa’s share price to changes in its transaction volume compared to MasterCard and American Express could explain why Visa has implemented more extensive support for Bitcoin payments compared to its peers – so that it can offset this potential lost revenue with a more direct role in the nascent industry over the long run.

Think our estimates are off? Create your own estimates by changing the inputs in our interactive model.

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