Visa Details
Visa Inc (NYSE:V) makes most of its money from card service fees, data processing fees, and international transaction fees. Service fees make up about 38% of Visa’s revenues and include fees paid by customers to participate in certain card programs. Data processing fees account for 33% of revenues and are primarily fees charged to merchants who accept Visa cards as payment. Finally, International transaction fees make up 24% of Visa’s revenues and are the fees charged when the merchant and card issuer are in different countries.
Visa Inc (NYSE:V) plans on continuing the expansion of its payments network, particularly in international markets. Emerging markets are just transitioning to the mainstream use of non-cash payments, and this is an area where Visa sees a particular opportunity for growth. Think of the U.S. in the late ’90s and early 2000s. While credit cards were already widely accepted, it was not until this point when credit cards became the dominant way to pay for everyday items. Consider Visa Inc (NYSE:V)’s revenues over the past decade. This is the potential for credit cards in emerging markets now:
Valuation and Alternatives
Visa trades at a lofty valuation of 26.4 times TTM earnings, but don’t be fooled by that high number. Visa Inc (NYSE:V) is expected to earn $7.34 per share this year, growing to $8.50 and $9.93 in 2014 and 2015, as analysts seem to have great confidence in the potential for expansion of the payment network. These numbers translate to an average annual earnings growth rate of 17%, which more than justifies the high valuation. Making Visa even more appealing is its debt-free balance sheet and almost $3 billion in cash.
The most logical alternatives are other payment networks, such as Mastercard Inc (NYSE:MA) or Discover Financial Services (NYSE:DFS).
