Visa ( V ) is the largest global electronic payment solutions company in the world and has the largest network of credit and debit cards in circulation. The company makes money by providing transaction information and resources between the customer, merchant and their respective banks, collecting a fee based on the number and dollar value of transactions that it processes. Visa competes with other card networks like MasterCard ( MA ), Discover ( DFS ) and American Express ( AXP ).
Our price estimate for Visa stands at $85.03 , which is roughly 15% above market price.
Visa Makes a Push in Digital Goods Market
Visa recently acquired virtual goods company Playspan for $190 million and entered the market of digital goods, which has become a $25 billion global market that could grow to $280 billion by 2014, according to PwC Global Entertainment. Visa's entry into this market is further validation of its growth potential.
Playspan enables game companies to monetize their platform by selling virtual goods. Users play online games for free but pay for virtual goods such as level unlock, feature unlocks, weapons, etc. Playspan is popular among game developers and its customers include top application developers on Facebook, Google Android and digital media publishers such as Warner Bros., Nickelodeon, Microsoft, Disney and Adobe.. In the words of Will Valentine from Visa Corporate Relations,
" A big reason these customers like PlaySpan's technology is that it does more than just facilitate transactions between consumers and game developers or social networks. It's really a broad suite of payment and commerce-related solutions in fraud and risk management, customer relationship management, analytics, merchandizing and payment connectivity. In short, it's a complete package. "
Transaction Volumes Will Grow
Last year, Visa acquired CyberSource, which is an established industry leader in e-commerce transactions with about 25% market share in the U.S. and a customer base of more than 295,000.. The acquisition of Playspan complements Visa's acquisition of CyberSource as the company is now well-positioned to play a larger role in the e-commerce market that JPMorgan estimates could grow from $948 billion 2010 to $1,365 billion in 2013.
We forecast that the growth potential of the e-commerce market, coupled with Visa's recent acquisitions, will help the company to grow its transaction volumes from about 48 billion in 2010 to 87 billion by 2017. However, there could be a 7-8% upside to our $85.03 price estimate for Visa's stock if recent trends spur further acceleration in transaction volumes towards 110 billion by 2017.