What Is Visa’s Fundamental Value Based On Expected 2019 Performance?

by Trefis Team
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Visa (NYSE:V) has performed strongly in recent quarters, beating street estimates for the previous four quarters. In fiscal Q1, the company posted a 13% growth in net revenues. For full year fiscal 2019, the company’s management has guided for low double-digit revenue growth and a single-digit reduction in operating expenses. Below we discuss the key drivers of Visa’s value, as well as our price estimate for the company’s stock.

We have a price estimate for Visa of $148 per share, which is roughly in line with the current market price. You can view our interactive dashboard on What to Expect From Visa in 2019 to modify any key forecasts and gauge the impact changes would have on the company’s valuation, and see all of our Financial Services company data here.

What Is Driving Visa’s Value? 

Below are the key drivers of value for Visa:

  • Data Processing Revenue (Transaction Fees) has been witnessing high teens growth for the past three years driven by an increase in the number of transactions. By expanding its global network of partners and extending its current agreements with companies such as PayPal and Netflix, Visa is utilizing the prowess of its global processing platform, VisaNet. The total number of processed transactions in 2017 and 2018 were 111 billion and 124 billion, respectively. Given the total capacity of 65,000 TPS, a total of 2 trillion transactions can be supported by VisaNet for a year. We expect the double-digit growth of data processing revenue to continue in 2019.

  • Services Revenue (Assessment Fees) has been witnessing a low teens growth for the past three years, driven by similar growth in payments volume. Payments volume is governed by the usage of Visa’s core products such as credit/debit cards for direct purchase. Payments volume saw growth of 13% in fiscal 2018, whereas cash volume observed growth of just 4% in 2018. With respect to the overall industry trend of greater use of digital payments, we expect this to continue throughout 2019.

  • International Transaction Revenue (International Fees) has seen mid-teen growth for the past three years and contributes 28% of the company’s value, per Trefis estimates. The company applied for a Chinese payment license in 2017, but it is apparently still under review. Access to the Chinese market, which has been dominated by UnionPay, would greatly increase cross-border transactions for the company. Given the uncertainty surrounding the U.S.-China trade dispute, we do not expect its resolution in the near future and keep our forecast growth numbers similar to modest prior year levels.

The aforementioned factors and trends are the primary drivers of our $148 price estimate for Visa’s stock.

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