Last October, Visa Inc (NYSE: V) CEO Charlie Scharf abruptly announced he would be resigning, effective December 1st. Scharf expressed a desire to return to the east coast to spend more time with his family. He did not believe it was fair to his family or Visa shareholders to continue leading the San Francisco-based company. Visa management immediately announced Alfred Kelly, Jr., a longtime executive with American Express Company and current Visa board member, would be replacing Scharf as CEO.
Needless to say, incoming CEO Kelly has big shoes to fill. During Scharf's tenure at Visa, the company's stock price soared. When he initially took the position in November 2012, Visa traded for around $35. When Scharf left, a little over four years later, the stock closed above $75, an approximately 115% gain during that time.
The stock price's incredible run was fueled by business growth. In Visa's 2012 fiscal year, the last full year before Scharf took over, the company reported revenue of $10.4 billion and had just a shade over 2 billion card holders. For the recently reported 2016 fiscal year, Visa reported $15.1 billion in revenue, a 45% increase, and 2.5 billion card holders.
While it is hard to find anything bad to say about Visa's business model or past performance, it doesn't mean the company doesn't face challenges. Let's take a closer look at what might be Kelly's three biggest tests as he takes the helm.
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In Accenture Consulting's 2016 North America Consumer Digital Payments Survey , 73% of consumers trusted traditional card payments the most as their mobile payments provider. The survey also stated that consumers see themselves using digital payments more in the future but that, as of right now, "No single digital payments option rises far above the rest." This means there is a huge opportunity for Visa to still take market share, but it won't be easy. There are many worthy competitors in the space, including Apple Inc's Apple Pay, PayPal Holdings Inc , and Mastercard MasterPass.
Fortunately for investors, Visa's business model is both highly profitable and has a wide economic moat . And Alfred Kelly, Jr. is certainly no slouch! By all accounts, during his 23-year tenure at American Express he capably headed several different departments. But new technologies, competitors, and opportunities have caused waves of unrest throughout the payments industry. How Kelly handles these upcoming challenges will give Visa shareholders a good gauge on how the company might fare under his leadership.
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Matthew Cochrane owns shares of Mastercard and PayPal Holdings. The Motley Fool owns shares of and recommends Apple, Mastercard, PayPal Holdings, and Visa. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends American Express. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
