Visa(NYSE: V) dominates the credit and debit card payments landscape as it handled more purchase transactions than anyone else in 2023. Chances are you have a Visa-branded card in your wallet right now. Such a strong industry position has resulted in a share price that has soared 1,430% in the past 15 years.
This outstanding business should certainly be on the radar of every long-term investor. Before you buy, however, here are three things you need to know about Visa.
Beating Wall Street estimates
Visa reported its financial results for the period that ended Sept. 30 (fiscal fourth quarter of 2024), and it exceeded Wall Street consensus analyst estimates. Net revenue totaled $9.6 billion, which was up 12% year over year. This was driven by an 8% jump in total payment volume to over $4 trillion in the quarter.
Cross-border volume showed a 13% increase compared to Q4 2023, which has been a bright spot in recent years. What's particularly encouraging is that Visa is seeing resiliency in the economy. "Our data does not indicate any meaningful behavior change across consumer segments from last quarter," CFO Chris Suh said on the Q4 2024 earnings call.
On the profitability front, Visa also beat expectations. The business generated $5.3 billion in net income in the quarter, representing a 14% year-over-year gain. Helped by $5.8 billion spent on stock buybacks during the three-month period, the company's earnings per share (EPS) rose 17% compared to Q4 2023.
For fiscal 2025, the leadership team expects the top line to grow high-single-digit to low-double-digit percentages, with EPS forecast to rise at the high end of low double digits. These expectations are in line with Visa's historical gains.
Two-sided ecosystem
At a high level, the best way to understand Visa's business model is to think of it like a two-sided ecosystem. The company facilitates transactions at 150 million merchants across the globe. And as of Sept. 30, there were a jaw-dropping 4.6 billion Visa cards in circulation around the world.
This massive scale means that Visa clearly benefits from network effects, which support its economic moat. The growing number of cards in circulation means that merchants find tremendous value accepting Visa payments. And with so many acceptance locations, consumers love having Visa-branded cards in their wallets.
Imagine trying to launch a competing payments network from scratch to rival Visa. It would be almost impossible to sign up merchants when there are no cardholders, and vice versa. This favorable setup gives me confidence that Visa isn't going to get disrupted anytime soon.
Critics will point to the ascent of various fintech services in the past decade. However, these offerings haven't prevented Visa from continuing to post healthy revenue and earnings gains year in and year out. In fact, fintech services help drive greater adoption of cashless transactions.
Secular tailwind
The rise of those cashless transactions is precisely what has supported Visa's long-term growth trends. According to Pew Research Center, 58% of Americans still use cash for some or all of their weekly transactions (data is from 2022). This is still a high percentage of cash usage in the world's most dominant economy. There is clearly still room for digital and card payments to grow in developed economies, to say nothing of emerging markets.
Visa is also focused on what management calls "new flows." This includes things like person-to-person, business-to-business, or government-to-consumer payments. New flows saw net revenue soar 22% year over year in the latest quarter, almost double the growth rate of the business overall. If this trend keeps up, it could account for more of Visa's financial performance in the future.
Should you invest $1,000 in Visa right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.
