The views expressed below are those of Anchor Capital Advisors, LLC (‘‘Anchor’’) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
Visa (V) is a global payments technology company that enables fast, secure, and reliable electronic payments across more than 200 countries and territories. It facilitates global commerce and money movement among a global set of consumers, merchants, financial institutions, businesses, strategic partners and government entities through innovative technologies. During fiscal year 2021, Visa’s total payments and cash volume was $13 trillion and the company currently has more than 3.7 billion cards in circulation worldwide that can be used at more than 80 million merchant locations.
We believe Visa is one of the highest quality businesses in the world. In our opinion the card networks have proven to be almost impossible to disrupt thanks to their two-sided network effects, technological sophistication, strong value proposition, and immense scale, among other things. We believe the market continues to underestimate the growth persistence and compounding nature of this business.
Visa’s business benefits from both growth in personal consumption expenditure over time as well as the secular shift towards digital payments away from cash and check, which has plenty of room to go. They are also a beneficiary of inflation as they take a percentage cut of each transaction.1 However, Visa has faced unprecedented pressure from the COVID-19 pandemic as governments imposed restrictions on cross-border travel. Cross-border is Visa’s most lucrative revenues steam, accounting for ~35% of its revenues in 2019. There has also been disproportionately weak spending in categories with high card penetration like travel and entertainment, which have pressured overall payment volumes. However, we expect a robust recovery throughout 2022 and beyond.
Longer-term, we believe Visa is at its fourth growth inflection point in its 60+ year history and this time the opportunity offers a 10x growth opportunity.2 That potential is through expanding its network of networks strategy to capture new sources of payment flows beyond C2B including money movement between individuals, businesses, and governments. Visa estimates its current addressable market to be an additional $185 trillion in payment flows. 2 Many remain skeptical that they will be able to capture these new payment flows but it’s already happening with the company showing tangible progress throughout the last few years. 1 We think this opportunity extends Visa’s growth runway well beyond what stock is pricing in and that the pandemic has only started to help accelerate this. All in all, we believe Visa can grow its earnings per share at a mid-teens rate for many more years.
Confirmation through Research
Visa’s business quality is no more evident than in its financial statements. The Company has been able to consistently grow its revenue and earnings per share well above market rates for over two decades. It has nearly 70% operating margins and returns on equity north of 30%. As Chuck Akre likes to point out, you could cut Visa’s operating margin in half twice and they’d still have above average margins for an American business.
We believe that the market has become impatient waiting for the recovery in cross-border travel and underappreciates just how big of an impact the inevitable recovery will have on the Visa’s revenue and earnings. We also believe that competitive concerns arounds things like digital wallets, buy-now-pay-later (BNPL), crypto and FedNow have weighed down all payment stocks but are misunderstood and overblown especially when it comes to the card networks. Finally, we feel that the market underappreciates the durability of Visa’s earnings growth given its tangible progress in capturing new payment flows as described above.