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Visa Inc. Fundamental Analysis

Disclaimer: This article by The Globetrotting Investor is general in nature. We aim to bring you long-term focused analysis driven by fundamental data, hence, providing you commentary based on historical data and analyst forecasts only using an unbiased methodology. This is not a buy/ sell recommendation, and it is solely for educational purposes. Please do your research before investing. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Please read the full disclaimer here.

Visa Inc.

Last Updated: 31 May 2024


GICS Sector: Financial Services

Sub-Industry: Credit Services


Visa Inc.

Table of Contents

You can download a summary of Visa Inc's fundamental analysis in PDF here.


Visa Inc. Management

CEO: Ryan McInerney

Tenure: 10.9 years

Mr. Ryan M. McInerney has been President of Visa Inc. since 3 Jun 2013, and CEO and Director since 1 Feb 2023. He oversees Visa's global client organization, product management, and new solutions group, focusing on developing and marketing products and services for issuers, acquirers, and merchants.


Under McInerney's leadership, Visa has achieved significant milestones. He deepened partnerships and expanded acceptance in Brazil and Bangladesh. Visa Direct grew through collaborations with Meta, Western Union, and Remitly. McInerney also led the acquisition of a majority interest in Prosa, a payments processor in Mexico, strengthening Visa's presence in Latin America.


McInerney has extensive experience in payments and consumer banking. He was CEO of Consumer Banking for JPMorgan Chase from June 2010 to May 2013 and served as COO for Home Lending, Chief Risk Officer for Consumer Businesses, and Head of Product and Marketing for Consumer Banking.


Before joining JPMorgan Chase, he was a Principal at McKinsey & Company in retail banking and payments. He also served as CEO of Consumer Bank Chase New York and is a Director of the Consumer Bankers Association. McInerney holds a Finance Degree from the University of Notre Dame.


Let us now analyze the CEO’s compensation.

Visa Inc. CEO compensation analysis over the last five years.

Visa Inc. CEO Compensation Analysis. Source: Simply Wall St

The total compensation refers to the sum of all forms of payments and benefits received by the CEO per year. This can include salary, bonus, stock options, and other perks.


From the graph above, the CEO’s compensation has been inconsistent with the company's performance over the past year. This can generally be a red flag.


Investors put money into companies expecting a return. If they see a disconnect between CEO pay and performance, they might be less confident in the company's ability to deliver those returns.


Looking broadly at Visa Inc.’s management team, it has an average tenure of 2.6 years. It is considered experienced.

Business Overview

Visa Inc. Business Overview

Visa is a global leader in digital payments, using cutting-edge technology to move money across over 200 countries and territories.


In a typical Visa consumer-to-business (C2B) transaction, a consumer uses a Visa card or payment product to buy goods or services from a merchant. The merchant then sends the transaction data to an acquirer, which is typically a bank or third-party processor, for verification and processing.


This data travels through VisaNet, Visa's proprietary global payment network, to Visa, which checks the account holder’s balance or credit line with the issuer. Once authorized, the issuer posts the transaction to the consumer’s account and pays the acquirer, minus the interchange reimbursement fee. The acquirer then pays the merchant the purchase amount, less the merchant discount rate.

A typical Visa C2B payment transaction.

A typical Visa C2B payment transaction. Source: Visa Inc.’s 10K

Visa generates revenue by facilitating these transactions. For Visa-branded card transactions, Visa provides authorization, clearing, and settlement services, earning revenue from service fees, data processing, international transactions, and other sources.


Depending on applicable regulations, some payment processors may or may not use Visa’s network to process Visa-branded card transactions. If they use Visa’s network, Visa may earn service revenues and data processing revenues. If they don’t, Visa earns only service revenues.


When processing non-Visa-branded card transactions, Visa offers gateway routing services to other payment networks and may earn data processing fees if requested to handle authorization, clearing, or settlement.


Unlike financial institutions, Visa does not issue cards, extend credit, or set rates and fees for account holders, nor does it bear any credit risk. Instead, Visa sets interchange reimbursement fees to reflect the value merchants gain from accepting Visa products.


Interchange reimbursement fees are payments that acquirers give issuers to balance the costs and benefits of using Visa's payment network. Visa sets standard interchange fees if no other agreements are in place, and these fees are set independently of what Visa earns from issuers and acquirers.


Acquirers decide the fees they charge merchants and recruit them to use Visa's network. Visa's income from issuers and acquirers is separate from interchange fees and merchant discount rates, ensuring a fair and balanced payment ecosystem.


Visa’s revenue streams are diverse:

  • Service Revenues: This is to support client usage of Visa payment services.

  • Data Processing Revenues: These are for authorization, clearing, settlement, and value-added services such as risk and identity solutions.

  • International Transaction Revenues: From cross-border transaction processing and currency conversion.

  • Other Revenues: From advisory services, marketing, card benefits, licensing fees, and account holder services.

  • Client Incentives: Visa pays financial institutions, merchants, and partners incentives to boost payment volumes, increase Visa product acceptance, attract merchant routing transactions to Visa’s network, and drive innovation.


These incentives are part of Visa's strategy to maintain its market leadership and encourage the use of its payment products.

Visa Inc. Reportable segments include service revenues, data processing revenues, international transaction revenues and other revenues.

Visa Inc. reportable segment revenue for the fiscal year ended 30 Sep 2023. Source: Visa Inc.’s 10K

Visa Inc. revenue from these geographic areas of the United States, and International.

Visa Inc. revenue geographic breakdown for the fiscal year ended 30 Sep 2023. Source: Gurufocus

Trends, Competition, and Strategy Overview

Visa Inc. Trends, Competition, and Strategy Overview

Visa aims to uplift everyone, everywhere, by being the best way to pay and be paid. The company facilitates global commerce and money movement among consumers, merchants, financial institutions, and government entities in more than 200 countries and territories through innovative technologies.


Visa accelerates revenue growth in three primary areas: consumer payments, new flows, and value-added services.


In consumer payments, Visa is shifting from cash and checks to cards and digital wallets. Their core products—credit, debit, and prepaid cards—are the backbone, but they actively embrace new trends like Tap to Pay, a contactless payment method with skyrocketing global adoption. Visa also strengthens security with the Visa Token Service and simplifies online checkouts with Click to Pay.


Visa isn't just about credit card swipes anymore. They're expanding their reach beyond traditional consumer payments with "new flows." This strategy focuses on facilitating money movement for consumers, businesses, and governments.


Visa Direct, for example, lets people send and receive funds quickly across borders using digital wallets and bank accounts. In fiscal year 2023, it processed over 7.5 billion transactions across 2,800 global programs and supported more than 500 partners.


Businesses can also benefit through B2B solutions like Visa B2B Connect, a network streamlining international payments between companies. By building a robust network that connects cards, digital wallets, and various payment schemes, Visa positions itself as a leader in the evolving world of money movement.


Visa offers value-added services beyond transaction fees. For issuers, Visa provides services like fraud mitigation, data analytics, and loyalty programs, including "Buy Now, Pay Later" solutions.


Merchants benefit from Visa Acceptance Solutions, which includes Cybersource. This platform helps businesses streamline transactions, reduce fraud, and integrate with e-commerce platforms. 


Visa also provides risk and identity solutions to combat fraud. These tools empower financial institutions and merchants to identify and prevent suspicious activity. By acquiring Tink, an open banking platform, Visa further positions itself at the forefront of secure financial data sharing.


Finally, Visa Consulting and Analytics provides valuable insights to issuers, acquirers, and other partners. These insights help businesses make better decisions and achieve measurable results.


The global payments industry is experiencing significant change, with existing and new competitors challenging Visa's network and payment solutions. Technological advancements alter consumer habits and foster growth in e-commerce, mobile payments, blockchain technology, and digital currencies. These innovations are attracting new entrants that often diverge from traditional payment models.


Visa competes against all forms of payment, including cash, checks, and various electronic payments. Key competitors include global and multi-regional networks like American Express, Discover, JCB, Mastercard, and UnionPay, which offer a range of card payment products accepted worldwide. Local and regional networks like Interac in Canada often have government support and focus on debit payment products with solid local acceptance.

Comparison of network with network competitors for the calendar year 2022.

Comparison of network with network competitors for the calendar year 2022. Source: Visa’s 10K

Beyond networks, innovative players are emerging. Buy-Now-Pay-Later (BNPL) and digital wallets offer alternative payment methods, often focused on e-commerce. Real-time payment networks (RTP), driven by government initiatives, aim to displace card payments for domestic transactions.


Payment processors compete for transaction volume, and new regulations may open doors for them. Additionally, alternative solutions exist for Visa's "new flows" services, like B2B payments. Even established players like banks may develop competing blockchain solutions.


The competition extends beyond processing. Technology companies and others offer value-added services that could replace Visa's offerings in areas like risk management and digital identity.


Despite the challenges, Visa leverages its strengths. Its global brand, diverse product suite, established network, and security record position it well. Furthermore, Visa's commitment to local partnerships and adapting to market needs ensures its continued relevance. 

Visa Inc. Economic Moat

Visa Inc. Economic Moat

There are many ways to identify Visa Inc.’s economic moat, but I focus on these 5 sources. The rating is purely subjective and is based on my in-depth understanding of the company. 

Visa Inc. has a wide economic moat. This is based on its intangible asset, cost advantage, efficient scale, network effect and switching cost.

Visa Inc. Economic Moat 


Economic Moat: Wide

Visa benefits significantly from a network effect. As more consumers join Visa's payment network, it becomes increasingly attractive to merchants.


This cycle enhances the network's convenience for consumers, perpetuating its growth and dominance in electronic payments. Visa's near-universal acceptance in developed markets exemplifies this effect.


But the economic moat goes wider.


Visa's payment processing is highly scalable, a key factor that allows Visa to enjoy cost advantages. As the transaction volume increases, Visa can spread its fixed costs over a larger base, reducing the average cost per transaction. This scalability not only brings about cost advantages but also enables Visa to invest more in security, technology, and customer service, further strengthening its market position.


Visa's intangible assets also reinforce its market position. The brand is globally recognized, fostering trust and reliability among consumers and merchants.


This strong brand identity enhances customer loyalty and preference. Furthermore, Visa's proprietary technology and software systems streamline transaction processing, ensuring security and efficiency, which are critical in maintaining consumer confidence. The company also possesses extensive data on transaction patterns, enabling it to offer valuable insights and innovative services to clients.


These intangible assets, combined with Visa's powerful network effect and inherent cost advantages, solidify its competitive edge and create barriers for new entrants.

Visa Inc. Performance

Visa Inc. Performance

My quick performance checklist:

Has Visa Inc.'s revenue consistently grown year over year for the past 5 years? Yes.

Is the net income consistently increasing year over year for the past 5 years? Yes.

Has the cash flow from operating activities shown consistent year-over-year growth for the past 5 years? Yes.

Has the free cash flow remained positive for the past 5 years? Yes.

Is the gross margin % consistent or growing over the past 5 years? It is consistent over the past 5 years at an average of 80%.

Has the EPS shown growth over the past 5 years? Yes, it has shown growth over the past 5 years.


In fiscal 2023, the failure of certain U.S. banks caused volatility in global financial markets, but these events did not impact Visa’s operating results. Visa actively monitors and manages the balance sheet and clients' operational risks, including settlement obligations. 


Visa's net revenues increased by 11% over the previous year, driven primarily by growth in nominal cross-border volume, processed transactions, and nominal payments volume. Payments volume, representing the total dollar amount of purchases made with Visa-branded cards, is the main driver for service revenues. Processed transactions using Visa-branded cards on Visa’s networks, driving data processing revenues.


However, this growth was partially offset by higher client incentives and unfavorable currency exchange rates. 


Operating expenses rose 12%, primarily due to increased personnel costs. This reflects Visa's hiring and employee compensation investment to support future growth initiatives, including acquisitions. Travel expenses and benefits also contributed to the rise but were partially offset by savings from Russia's suspension.


During fiscal 2022, economic sanctions imposed on Russia by the U.S., European Union, United Kingdom, and other authorities affected Visa and its clients. Visa suspended operations in Russia in Mar 2022, ceasing revenue generation from domestic and cross-border activities there. In fiscal 2022 and 2021, revenues from Russia accounted for approximately 2% and 4% of Visa's consolidated net revenues, respectively.

Visa Inc.'s financial performance which includes its revenue, net income, operating cash flow, and FCF over the recent 5 years.

Visa Inc. Revenue, Net Income, Operating Cash Flow, and FCF (USD Million)


Has free cash flow per share increased over the last 5 years? Yes, it has been increasing for the last 5 years.

Visa Inc.'s free cash flow per share has been growing for the past 5 years.

Visa Inc. FCF per Share

Management Effectiveness

Has Visa Inc.'s ROE stayed within or above the 12%-15% range year over year for the past 5 years? Yes, its ROE has averaged 37% over the past 5 years.

Visa Inc. Management Effectiveness
Visa Inc.'s ROE is above its industry average ROE.

Visa Inc. Return on Equity

A company having a ROE higher than the industry average is generally considered positive. It can be a sign of strong management that the company is making good use of company resources to create better returns as compared to its competitors.


Has the ROIC stayed within or above the 12%-15% range year over year for the past 5 years? Yes, its ROIC has averaged 30% over the past 5 years.

Visa Inc.'s ROIC is more than its WACC.

Visa Inc. Return on Invested Capital vs Weighted Average Cost of Capital

When ROIC is greater than WACC, it means that the company's investments are earning a higher return than what it costs to pay for those investments. This means they are using their money well and creating value for their shareholders.


The trendline for the number of shares outstanding is declining, which is something that an investor would be pleased to see. 

The number of Visa Inc. shares outstanding has been declining over the past 5 years.

Visa Inc. Shares Outstanding (Million Shares)

In October 2022, the board of directors authorized a $12 billion share repurchase program. During fiscal 2023, the company repurchased 55 million shares of class A common stock for $12.2 billion.


By 30 Sep 2023, $5 billion remained in the program. In October 2023, the board approved a new $25 billion share repurchase program, allowing multi-year flexibility.


Share repurchases will be executed at appropriate prices based on market conditions and financial performance. These may include accelerated share repurchase programs, open market purchases, or privately negotiated transactions, including Rule 10b5-1 plans. 

Visa Inc. Financial Health

Visa Inc. Financial Health
Visa Inc. balance sheet which includes total equity, total debt, and cash & short-term investments.

Visa Inc. Financial Health (USD Million)

Current Ratio: 1.4 (pass/fail my requirement of >1.0, but <3.0)

I use the current ratio instead of the quick ratio to analyze the company’s liquidity. This is because I want a general overview of financial health, and the company’s inventory is a significant asset that can easily be converted to cash.


The trend of its current ratio has been relatively flat over the past 5 years and is generally a good sign as it meets my criteria.


Comparing the current ratio to its industry, Visa Inc. is worse as it is below the industry median of 4.6.

Debt-to-EBITDA: 0.9 (pass my requirement of <3.0)

Interest Coverage: 36.1 (pass my requirement of >3.0)

Debt Servicing Ratio: 3.0% (pass my requirement of <30.0%)

Visa Inc. Intrinsic Valuation

Estimated intrinsic value: USD $223.45

Value is calculated using the discounted cash flow method (considering their cash and debt) and scenario planning.

Average free cash flow used: USD $17,000M

Projected growth rate: 11% - 14%

Beta: 0.9

Discount rate: 7.8%

Ideal margin of safety: 20% (Uncertainty: Low)

Price range after the margin of safety: <USD $179.00

Date of calculation: 31 May 2024 

Visa Inc. Valuation
Visa Inc.'s valuation is based on the discounted cash flow method. A fundamental analysis by Ben, The Globetrotting Investor.

Visa Inc. Valuation

I use the past 5 years' free cash flow and apply a weighted average, giving more focus on the recent years. I then round the average to the nearest tens. In some instances, I use a more realistic number to represent the free cash flow.

The total debt and cash and short-term investments are the last quarter figures that are rounded to the nearest tens. In some instances, I use more realistic numbers to represent them.

Visa Inc. estimated fair value and its 52-week range.

Visa Inc. Intrinsic Valuation

Comparison of Visa Inc.’s price-earnings ratio against its five closest industry peers.

Visa Inc. Relative Valuation

Visa Inc. Relative Valuation

Visa Inc. Price-Earnings Ratio vs its Peers

Visa Inc.'s price-earnings ratio for the past 5 years and its 5-year average.

Visa Inc. Historical Price-Earnings Ratio

Additional Resources

I recommend reading The Five Rules for Successful Stock Investing as it greatly helps in my stock analysis. If you want a complete collection of recommended books, please visit here.

My Concerns

Visa faces a growing threat from regulations around the world. These regulations can restrict Visa's control over its payment system, force contract changes, and inflate compliance costs. The inconsistency of these regulations across different countries makes it even harder for Visa to operate efficiently.


Non-compliance not only erodes Visa's profitability but also constrains its capacity to introduce new products and services. Despite robust compliance measures, the risk of fines, lawsuits, and reputational damage looms large if Visa breaches regulations, underscoring the criticality of regulatory adherence. 


Increased scrutiny of payment fees, merchant rates, operating rules, and security protocols is a concern. Regulators are looking closer at these fees, which are crucial for Visa's competitive edge and transaction volume. Regulators' changes to these fees can significantly impact Visa's revenue.


For instance, the EU has capped fees on consumer transactions, and similar measures are being considered in Latin America and Asia-Pacific. Regulations might even force Visa to share its technology with competitors, further hindering its profitability. 


Visa's ability to compete effectively in key markets like China and India is hampered by government restrictions on international payment systems. These governments, favoring domestic payment providers, impose barriers that make it arduous for foreign companies like Visa to penetrate the market.


For instance, China's UnionPay dominates domestic transactions, and Visa faces regulatory obstacles in securing a license to operate there. Similarly, data localization mandates in India escalate Visa's operational costs and impede its competitive stance.


Efforts to reduce reliance on international payment networks, like the European Payments Initiative, further complicate Visa's global reach. Other regions are considering similar restrictions. These restrictions increase costs, reduce transaction volumes, and limit Visa's growth potential, ultimately harming its business and financial health.


Beyond regulations, global events can also hurt Visa's business. Over half of Visa's revenue comes from outside the U.S., making international transactions crucial for growth.


Economic downturns, inflation, high interest rates, and unemployment can directly impact transaction volumes and revenues. Pandemics, political unrest, wars, and natural disasters can disrupt operations and cross-border travel. 


Geopolitical tensions and sanctions, like those imposed on Russia, have already forced Visa to suspend operations in certain regions, cutting off revenue streams. Additionally, shifts in consumer behavior due to climate change regulations and investor expectations can impact business. If economic and social conditions decline, card usage and consumer spending will fall, affecting Visa's revenues and growth prospects.


Investing in Visa offers potential benefits due to its wide economic moat and satisfactory performance. With an impressive average ROE of 37% over the past five years, Visa has demonstrated efficient capital allocation.


Furthermore, the number of shares outstanding has been decreasing, indicating strong buyback activity. Visa also maintains a satisfactory balance sheet, reinforcing its financial stability.


However, investing in Visa still involves a significant amount of uncertainty. Therefore, aiming for an ideal margin of safety of 20% is crucial to mitigate risks and ensure a more secure investment.

My Concerns

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