I have decided to include Visa $V (+0,67%) into my portfolio. Here I explain why I am convinced that Visa is an outstanding investment opportunity and why it stands out from its competitors.
1.1 Market leadership and network effects - a detailed look
Visa is an undisputed market leader in payments. This is due to several strategic and operational advantages that distinguish the company from its competitors and secure it a dominant position.
1.1.1 Visa: The largest payment network in the world
Global availability:
Visa operates in over 200 countries, giving it a near global presence. This broad coverage makes Visa the preferred choice for cross-border payments and international transactions.
1.1.2 Acceptance points:
With more than 70 million points of acceptance worldwide, Visa offers an unrivaled network of merchants, service providers and other partners that accept Visa cards. This includes brick-and-mortar retailers, online stores and specialized markets such as public transport.
1.2 Network effects: The key to dominance
Network effects are a central element of Visa's business model. They ensure that the attractiveness and benefits of the network for all participants increase with each additional user. This works in two main ways:
1.2.1 More merchants attract more consumers:
When merchants accept Visa, consumers are more likely to choose a Visa card because they can be confident that it can be used anywhere.
This creates trust and convenience for consumers, which in turn increases demand for Visa products.
1.2.2 More consumers attract more merchants:
Merchants benefit from Visa's large customer base. The more consumers use Visa cards, the greater the incentive for merchants to accept the network.
Merchants who do not accept Visa risk losing potential customers, which pushes them to become part of the network.
1.3 Comparison with competitors
Mastercard:
Mastercard also has a strong global presence, but its reach and acceptance are slightly lower than Visa. Visa also has a higher market penetration in emerging markets, where the transition to digital payments is still underway.
American Express:
American Express has a much smaller reach, especially outside the US. Merchants are often reluctant to accept American Express because the fees for merchants are higher than for Visa or Mastercard. This significantly reduces network effects.
PayPal and other digital providers:
Digital payment solutions like PayPal are strong in e-commerce, but don't have nearly the acceptance in brick-and-mortar retail that Visa does. Visa combines both worlds by being well established both online and offline.
1.4 Strategic advantages of network effects
Barriers to entry for new competitors:
The size of the Visa network makes it almost impossible for new providers to compete. Building a comparable network would require immense resources and time.
1.4.1 Economies of scale:
Due to the large number of transactions, Visa can minimize the operating costs per transaction.
1.4.2 Brand loyalty and customer retention:
Consumers and merchants, once part of the Visa ecosystem, often stay with it long-term due to high acceptance, reliability and convenience.
2. strong financial metrics
Visa delivers impressive financial performance:
- Revenue: USD 35.93 billion in 2024 (+10% compared to 2023).
- Net margin: 54.9%
- Operating margin: 65.7 %
- Dividend: Increase of 15.6% in 2024, which could also make Visa more attractive for dividend investors.
3. forward-looking strategies
Visa pursues a forward-looking strategy that focuses on investing in innovative technologies and developing new payment solutions. The main areas of this strategy are:
3.1 Blockchain and cryptocurrencies
Visa is integrating blockchain technology into its payment infrastructure to enable more efficient transactions. In October 2024, the company launched the "Visa Tokenized Asset Platform" (VTAP), which enables banks to create and test their own fiat-backed tokens (see PYMNTS, 3*).
3.2 Artificial intelligence (AI)
Visa is investing heavily in AI technologies, particularly for fraud prevention. In 2024, the company introduced new AI-supported tools to increase security for credit card holders and combat fraud in online and stationary payments (cf. deutschland-kreditkarte.de, 4*).
3.3 "Buy Now, Pay Later" (BNPL) solutions
Visa is expanding its range of BNPL solutions worldwide to meet the growing demand for flexible payment methods. In November 2024, Visa partnered with fintech company Affirm to launch a card in the US that enables both debit transactions and BNPL purchases (see Reuters, 5*).
3.4 Contactless payment systems in public transport
Visa is promoting the introduction of contactless payment solutions in public transport. In the Netherlands, the "OVpay" system was introduced in February 2024, enabling passengers to pay directly with their card or mobile without having to take a ticket from a machine or download an app (see Visa, 6*).
Through these initiatives, Visa is positioning itself as a pioneer in digital payments and laying the foundation for future growth and the development of new markets.
4 Global growth opportunities
The world is moving towards cashless payments and Visa is perfectly positioned to capitalize on this trend. Emerging markets and digital payments offer tremendous growth opportunities. Analysts expect Visa's earnings to grow at +18.71% p.a., highlighting the potential for high returns.
5. impressive quarterly figures
Visa exceeded expectations in the fourth quarter of 2024:
- Earnings per share (EPS): USD 2.71 (above the forecast USD 2.58).
- Revenue: USD 9.6 billion (+12% compared to the previous year).
These results confirm Visa's strong market position and financial stability.
(see Investmentweek, 2*)
6 Visa key figures comparison 2023 and 2024
Financial year 2023 Financial year 2024
Revenue: USD 32.653 billion USD 35.926 billion
Operating margin: 65.7 % 65.7
Net profit margin: 52.9% 54.9%
Earnings per share (EPS) USD 8.77 USD 10.05 USD
Revenue: Visa recorded a year-on-year increase in revenue of 10.0% in financial year 2024, indicating increased transaction volumes and stronger global demand for digital payment services.
Operating margin: Operating margin remained constant at 65.7%, reflecting the company's continued operational efficiency and cost control.
Net profit margin: Net profit margin increased by 2.0 percentage points to 54.9%, indicating improved profitability and possibly cost savings or higher margins on new services.
Earnings per share (EPS): Earnings per share increased by 14.6% to USD 10.05, reflecting both increased net income and potential share buybacks that spread earnings over fewer outstanding shares.
(Visa Annual Report, 1*)
7. my conclusion
I have already decided to add the first tranche of Visa to my portfolio. The combination of stable market leadership, impressive financials and long-term growth potential makes Visa an excellent choice for me.
Despite my positive assessment, I will be watching the upcoming Annual General Meeting, which will take place on January 28, 2025, for new strategic announcements and decisions that are important for the future of Visa.
In my opinion, an entry into Visa, especially at a price below €300, is an excellent opportunity. With this valuation, I consider the current price of €280 to be particularly attractive and see Visa as a valuable long-term addition to my portfolio.
Disclaimer: This is not financial advice, but my personal opinion. Please make your own decisions based on your individual situation.
Sources:
1* https://annualreport.visa.com/financials/default.aspx?utm
4* https://www.deutschland-kreditkarte.de/news/visa-investiert-kuenstliche-intelligenz-ki.html
