ValueX Vail Presentation: Visa – Great Company At A Fair Price

ValueX Vail Presentation: Visa – Great Company At A Fair Price

Matt Griffith, CFA presentation on Visa Inc (NYSE:V) from ValueX Vail, June 19, 2014.

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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

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investHistorically, the Chinese market has been relatively isolated from international investors, but much is changing there now, making China virtually impossible for the diversified investor to ignore. Earlier this year, CNBC pointed to signs that Chinese regulators may start easing up on their scrutiny of companies after months of clamping down on tech firms. That Read More

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

valuex vail visa global conversion

  • 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?

valuex Vail Visa 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)

See full ValueX Vail Presentation: Visa – A Wonderful Company At A Fair Price in PDF format here.

VALUEx Vail 2014 Visa Presentation

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