Matt Griffith, CFA presentation on Visa Inc (NYSE:V) from ValueX Vail, June 19, 2014.
ValueX Vail Presentation: Visa
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) Shareholders Letter, 1989
“There is value in growth.” – Vitaliy Katsenelson, ValueX Vail Vail 2012
Visa’s Business
“Never invest in any idea that you cannot illustrate with a crayon.” – Peter Lynch, Beating the Street
1) Cardholder makes purchase
2) Merchant transmits transaction to acquiring bank
3) Acquirer routes transaction over Visa Inc (NYSE:V)’s network to issuing bank
4) Issuing bank authorizes transaction
5) Merchant submits final transaction data to Visa for settlement
6) Funds transferred between cardholder’s account to the merchant’s account
Visa Inc (NYSE:V) Network Transaction Revenue: ~22bps of volume
Non-Visa Network Transaction Revenue: $0.057 per transaction
Average Incremental Margin Since 2010: 76.5%1
No credit risk – a technology company operatinng in the financial services industry
ValueX Vail: Visa’s Strategy
- Increase share of electronic payments as a percentage of global personal consumption expense (PCE)
- Grow revenue streams outside of the US to greater than 50% of total revenue • Increase share of transactions processed on VisaNet
- Invest in new businesses that provide additional value to customers in payment ecosystem and drive revenue growth
Global Conversion to Electronic Payments
- Visa Inc (NYSE:V) 2012 Volume: $6.4T and 28% share of $23T market (excluding Europe)
- $11T cash conversion opportunity with the same share and monetization rate represents a potential revenue increase of 53% – solely from the shin to electronic payments
Risk of Declining PCE?
- 79% of US PCE is non-discretionary
- US GDP per capita is the 12th highest in the world, which indicates a level of discretionary income above average levels
- PCE looks very much like recurring revenue
Sustainable Competitive Advantage
- Deep integration with all members of payment ecosystem
- Consumers – 2.1B cards issued
- When banks switch networks on their card portfolios, card re-issuance can lead to customer a6riFon of 10-15%
- Reissuance is operaFonally complex and costly
- Merchants – 36MM locations accepting Visa cards globally
- Large number of cardholders ensures that merchants have incentive to accept Visa Inc (NYSE:V)
- Banks – Relationships with 15,000 financial institutions
- Transactions – 82B transactions in CY 2012
- Knowledge of customers and their transactions allows Visa to provide value- add services to merchants and issuers that new entrants cannot (fraud avoidance, enhance volumes)
