Value Investing

My Visa Long Is Getting Long In The Tooth


Over my lifetime I have invested in many different things.  In the process of doing that, I have learned that there are really only two types of investors.  As an investor, you are either active or passive.  Being active implies directly managing or being in control of your investment.  In contrast, as a passive investor you allow others to manage the asset on your behalf.  There are advantages and disadvantages to both approaches, and neither approach is necessarily better than the other.  It all comes down to each individual’s personal preference.

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When I was younger, one of my active investments was running a quarter horse ranch. Unlike humans, a horse’s teeth continue to grow as they age.  Consequently, you can judge the age of a horse by looking into its mouth and checking the length of his teeth.  The longer the horse’s teeth, the older the horse.  This method of checking the horse’s teeth to determine its age is also the source of another old adage “never look a gift horse in the mouth.”

As a long-term investor in Visa (V), I would describe my experience more recently as a gift.  Therefore, I do believe it’s time to question the value of this gift.  More precisely, I believe it’s time to question the valuation of Visa.

FAST Graphs Analyze Out Loud Valuation Analysis of Visa

I have been long Visa since May of 2011 and it has been one of the best performing stocks I have ever owned.  However, the following analyze out loud video clearly illustrates the undeniable reality that Visa’s stock price has become significantly overvalued.  I believe the risk associated with such a high valuation is crystal clear when viewed visually via FAST Graphs.  Visa continues to be a great company with a clearly defined future.  But investors should never forget that price is what you pay and value is what you get.

Summary: Visa Inc.

Although I am currently challenging whether it’s prudent to continue holding on to my position in Visa or not, it’s important to point out that my view of the company remains extremely positive.  In other words, I still like the company today as much or even more than I did when I purchased it in May 2011.  The company has performed almost precisely as I expected it to.  Furthermore, I expect the company to continue growing at above-average rates of 15% to 20% per annum going forward.

There is a lot more to Visa than simple credit cards.  The following long business description courtesy of S&P Capital IQ summarizes Visa’s businesses and its long-term opportunities.

“Visa Inc. operates as a payments technology company that connects consumers, merchants, financial institutions, businesses, strategic partners and government entities worldwide.

The company’s transaction processing network facilitates authorization, clearing and settlement of payment transactions and enables it to provide its financial institution and merchant clients a range of products, platforms and value-added services.

The company offers VisaNet that authorizes, clears and settles transactions processed by the company, excluding European domestic transactions, which are routed through the European processing platform. VisaNet consists of various synchronized processing centers that are linked by a global telecommunications network and engineered for uninterrupted connectivity.

Products and Services

Debit: The company provides the network infrastructure, product support and industry knowledge to help issuers optimize their debit offerings and help consumers and merchants transact for the purchase of goods and services, whether in person, or through online or mobile channels.

Credit: The company provides combinations of card benefits and brand support that financial institutions use to support and enable their credit products. The company also partners with its clients on product design, customer segmentation and customer experience design to help financial institutions deliver products and services that match their consumers’ needs.

Prepaid: The company’s prepaid products draw funds from a designated pool of funds. Prepaid cards could be funded by individuals, corporations or governments. Prepaid cards address various consumer use cases and needs.

Commercial: The company offers a portfolio of corporate (travel) cards and purchasing card (P-card) products covering all major segments. The Commercial category is a portfolio of products designed to bring controls and automation to corporate and government travel and procurement processes ranging from employee travel to integrated, invoice-based payables. The company supports financial institutions, accounts payable platforms, such as Bottomline and MineralTree, and technology companies.

Transaction Processing Services

The company’s core transaction processing services involve the routing of payment information and related data to facilitate the authorization, clearing and settlement of transactions between its issuers and acquirers. Its processing services also address the varied needs of other participants in the evolving payments ecosystem, through such offerings as its merchant gateway and Visa DPS issuer processing. Merchant gateway services, provided through CyberSource, enable merchants to accept, process and reconcile payments, manage fraud and safeguard payment security online and in-store. CyberSource additionally enables acquirers and other partners to offer these services to their merchants. DPS provides comprehensive issuer processing services for participating issuers of Visa debit, prepaid and ATM products. Value-added offerings by DPS to issuer clients include fraud and risk services, data analytics, marketing campaign management, mobile and digital solutions, back office tools and services, card fulfillment and management, network gateway services, call centers and Web hosting solutions.

Digital Products

Visa Checkout: Visa Checkout offers consumers a secure payment experience for online transactions wherever Visa Checkout is enabled. In 2016, Visa Checkout had approximately 15 million consumer accounts in 21 countries, 7 languages and 1,400 financial institution partners across the globe participating. Approximately 300,000 merchants, including major global retailers accept Visa Checkout. The company announced that it is opening the Visa Checkout platform to clients and partners, allowing them to integrate their digital wallets into Visa Checkout for streamlined authentication and checkout.

Visa Direct: Visa Direct is a push payment product platform that facilitates payer-initiated transactions that are sent directly to the Visa account of the recipient. It supports payments use cases, such as person-to-person payments, and disbursements.

Visa Token Service: The Visa Token Service replaces the card account numbers from the transaction with a token. In 2017, the company announced new specifications that allow certified third party service providers, such as Gemalto, Giesecke & Devrient and Inside Secure to connect directly to its Token Service and become Token Service Providers (TSP). These TSPs would be able to provide a range of services to support Visa tokens for issuers and token requestors participating in the Visa Token Service, including new account provisioning and life cycle management.

Merchant Products

The company has a suite of products and services to help improve their customer engagement. Visa Advertising Solutions, Visa Commerce Network (VCN) and CyberSource’s product offerings are examples of the company’s investment to deliver products and capabilities to its merchant partners.

The company launched Visa Advertising Solutions, a service that allows merchants to target and track the efficacy of their digital campaigns. The company has partnered with strategic advertising technology leaders to help deliver targeting and measurement capabilities using aggregated and anonymous spend insights. The VCN uses the company’s global payment network to enable merchants to promote relevant offers to acquire new customers, drive loyalty and increase sales.

CyberSource offers a suite of products and services for merchants to manage online, mobile and in-store payments. CyberSource gateway services enable global payment acceptance of cards and other digital payment types. CyberSource Decision Manager is a solution for fraud management, including a merchant risk model, rules engine, managed services and solutions for specific categories, such as airline fraud. Decision Manager Replay is an analytical tool that allows merchants to compare fraud strategies in real-time using their historical data to test and quantify the expected impact of various risk management strategies. CyberSource additionally offers payment security services, including tokenization and payer authentication, commerce services, such as tax calculation and recurring billing, and merchant reporting and analytics. CyberSource also offers products and services tailored to the needs of small and mid-sized merchants under the Authorize.Net brand. CyberSource and Authorize.Net capabilities are offered through Visa and its partners.

Risk Products and Payment Security Initiatives

The company continues to develop its suite of risk products and services to help clients minimize risk and enable secure commerce. Visa Risk Manager is a decision making solution that helps issuers improve loss prevention and profitability through improved risk evaluation capabilities. Products, such as Visa Advanced Authorization evaluate the risk associated with every participating VisaNet transaction. In 2016, the company introduced Mobile Location Confirmation, a service that improves Visa Advanced Authorization by adding geolocation intelligence in real time. Mobile Location Confirmation informs issuers if their participating account holder’s mobile phone is near a purchase location.

Visa Consumer Authentication Service is a hosted solution for issuers on Verified by Visa transactions delivering protection against online fraud through risk-based authentication.

The company also launched Visa Consumer Transaction Controls in 2016, which allow account holders to place restrictions on their enrolled cards that define when, where and how those cards could be used to manage account spending and security.

Intellectual Property

The company owns and manages the Visa brand. The company’s portfolio of trademarks, in particular its family of Visa marks, its PLUS mark and its Dove design mark are important to its business.


The company’s competitors include MasterCard; American Express; JCB; and Discover/Diners Club.


The company is subject to anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other laws that generally prohibit the making or offering of improper payments to foreign government officials and political figures for the purpose of obtaining or retaining business or to gain an unfair business advantage. The company is also subject to anti-money laundering and anti-terrorist financing laws and regulations, including the U.S. Bank Secrecy Act and the USA PATRIOT Act. In addition, the company is subject to economic and trade sanctions programs administered by the Office of Foreign Assets Control in the U.S.

Significant Events

In January 2017, Oman Arab Bank (OAB) has joined hands with Visa, in a strategic partnership agreement that would convert the Bank’s electron cards to secure chip-and-PIN debit cards. Under the agreement, OAB customers would be able to utilize their cards equipped with the EMV chip-and-pin technology to ensure all payments are made at millions of merchants around the world.

In January 2017, Bottomline Technologies announced a strategic alliance with Visa Inc. that would create the way for businesses to pay and get paid. Visa’s commercial card solution, Visa Payables, and Bottomline’s payment network, Paymode-X, joined to create Paymode-X with Visa Payables. Paymode-X with Visa Payables advances the two companies’ shared vision for business payment automation.


Visa Inc. was incorporated in the state of Delaware in 2007.”


I believe that Visa’s current valuation has become extreme.  Therefore, I do believe it is time to start looking this gift horse in the mouth.  However, the company and its stock price continue to perform.  Therefore, I have decided to continue riding this horse a little longer.  On the other hand, I am doing so with my eyes wide open.  In other words, I am vividly aware that Visa’s fundamentals – as good as they are – do not support its lofty valuation over the longer run.

As indicated in the above video, I believe Visa’s current valuation has gotten long in the tooth.  Consequently, I find myself faced with one of my most frustrating dilemmas.  I don’t want to sell this wonderful business, but I also don’t want to see my gift of excess profits vanish either.  Nevertheless, I am diligently watching my position and I am prepared to sell at the hint of any bad news.  The only thing I am truly certain about is that I would not add money to this position at this valuation.

Disclosure: Long V at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Article by F.A.S.T. Graphs