Can a 50-year-old brand with annual revenue of more than $10
billion and a market cap of $79 billion still be a growth
In the case ofVisa Inc. (
), the answer is yes. Since Visa went public in 2008, revenue has
grown 14% on a compounded annual basis as consumers around the
world continued to move from cash to plastic.
The world's largest processor of card transactions, San
Francisco-based Visa leverages its global payments platform to
drive even faster growth on the bottom line.
Since the IPO, earnings have grown at a compounded annual rate
of 30%, though growth is expected to slow to just below 20% the
next few years as Visa invests to keep customers and win new
Visa ranks high in the IBD50 list of growth stocks along with
small-cap stocks such asSturm Ruger (
) and3D Systems (
There is a lot more shifting to come from cash to plastic and
beyond to keep Visa in growth mode, Visa's management says.
"At the time we went public, there was $11 trillion to $12
trillion of cash globally," said Chief Financial Officer Byron
Pollitt in a recent interview. "Today there is $13 trillion. So
the growth runway we have before us is even longer today."
The next leg of growth will come under the helm of new CEO
Charles Scharf, a former head ofJPMorgan Chase 's (
) retail arm. He took over from soon-to-retire Joseph Saunders,
who led Visa through its IPO and a thicket of U.S. regulations
over the last year, which impacted its industry-leading debit
A lot of new growth will likely come from outside the U.S.,
where card spending is growing faster than in the more mature
U.S. card market.
Think of the card processing business as a toll road, says
Nomura Securities analyst Bill Carcache.
"The toll road has been built, and you drive incremental
volume over that toll road," he said. "For every additional
dollar of revenue that comes in for Visa, essentially 90 cents is
gross operating income."
For smallerMasterCard (
), it is 80 cents of each incremental dollar, he says.
"It's more expensive for MasterCard to drive the kind of
volume growth relative to Visa," Carcache said.
Visa's operating margin was 60% in its September-ending fiscal
year. Carcache expects MasterCard's to come in at 53% this
Pollitt says Visa's operating margin should be better than
MasterCard's because of its larger scale. He said, "We do not
manage to a margin. Margins are an outcome. We are a
Visa has returned a good deal of that excess cash to investors
in the form of share buybacks and dividends, the latter of which
have gone from 42 cents a year in 2008 to $1.32 in 2012.
U.S. financial-reform legislation caused Visa to lose debit
share to MasterCard over the last year. But it's been able to
stem some debit-share losses through rebates and incentives to
merchants, as well as various pricing schemes.
"If anything, they haven't lost as much as many people
thought," said Zilvinas Bareisis, senior analyst with consultancy
Credit card spending has been a bright spot for Visa. In the
last quarter, its credit volume jumped 9.2% over the prior year,
while U.S. debit volume fell 6.6%.
Pollitt says affluent cardholders have been a boon to Visa's
credit card business because they tend to pay off their balances,
freeing them to make more purchases.
"The profitability of a card to Visa is a function of how
often it's used," Pollitt reminded.
Carcache offers another theory supporting Visa's strong
credit-card business. The company "has the good fortune to be
partnered with issuers who are seeing strong volume growth," he
He points in particular to Visa's top bank issuer, JPMorgan
Chase, which posted a 10.7% gain in overall U.S. purchase volume
in Q3, following a 12.3% gain in Q2.
In contrast, he says,Citigroup (C) is MasterCard's top issuer
and its overall U.S. card volume was down 0.5% in Q3, after no
growth in Q2.
Meanwhile, 47% of Visa's revenue currently comes from outside
the U.S. Visa wants that number to reach 50% by 2015.
"In order to make that happen, we have launched accelerated
growth strategies in a multitude of countries throughout the
globe," Pollitt said.
"The vast majority (of non-cash-paying consumers) are using
plastic cards, but the fastest-growing form factor in our
ecosystem is the mobile phone," Pollitt said.
Visa's key new program to address online commerce, using
mobile phones especially, is V.me, a digital wallet that makes
online shopping a snap.
The program just launched in the U.S., but Visa expects to
start rolling it out in global markets next year, including
Brazil, Visa's second-largest market after the U.S.
Visa Europe recently announced V.me launches in Spain, France
and the U.K. Though Visa Europe is a separate operating entity
(to many investors' delight because of Euro woes), the European
rollout of V.me matters, Pollitt says.
"The more broadly V.me is adopted, the more you create the
network effect," he said. In other words, as adoption expands,
more banks and merchants are apt to hop on the bandwagon.
In V.me's U.S. launch,Bank of America (BAC),PNC (PNC) andU.S.
Bancorp 's (USB) US Bank are among more than 50 banks that have
agreed to offer V.me to its online banking customers.
"Bank of America is a big win," Carcache said.
And 25 merchant partners are signed on,
including1-800-Flowers.com (FLWS),Blue Nile (NILE), Buy.com and
Visa still lacks big-name retailers. Pollitt says Visa is in
negotiations with them. "They are to come," he said. "This is
still very early days."
"The real test will be how merchants and consumers adopt
(V.me)," said Celent's Bareisis.
Online spending on U.S.-issued Visa cards topped $5 billion
over the Thanksgiving weekend.
On Cyber Monday alone, a record $2 billion was spent on Visa
credit and debit cards issued in the U.S., a 21% jump over last
year's same time.
"The real call-out of Thanksgiving was the superb performance
of online," Pollitt said.
But questions remain, including resolution of the fiscal cliff
in the U.S. and the kind of economic recovery that will take
place over the next year, he says.
Visa's guidance for 2013 calls for revenue growth in the low
teens and earnings growth in the high teens.