Can Visa Maintain Its Lead?
Morningstar's analyst suggests the payment processor faces some near-term issues.
Visa (V) is an established longtime market leader that still enjoys strong growth prospects. Despite the ongoing evolution in the payment industry, we think a wide economic moat surrounds the business and Visa’s position in the global electronic payment infrastructure is essentially unassailable.
The shift toward electronic payments has driven Visa’s growth, and we expect that to continue for the foreseeable future. Digital payments, on a global basis, surpassed cash payments just a few years ago, suggesting this trend still has a lot of room to run. We think emerging markets could offer a further spurt of growth even if developed markets slow. Visa’s position as the leading network makes it something of a tollbooth business, and the company is relatively agnostic to the smaller shifts within electronic payments, since it earns fees regardless of whether payment is credit, debit, or mobile.
Visa is not without its issues in the near term, and smaller peer Mastercard (MA) has been performing better over the past few years. Cross-border transactions, which are particularly lucrative for the networks, have seen dramatic declines as a result of the coronavirus outbreak and a reduction in global travel. We expect this headwind to endure for some time, but history suggests that travel ultimately makes a full recovery following disruptive events, and we expect that to be the case again, although the process could take a few years.
Visa has sensitivity to the volume of consumer transactions, and the United States remains its largest market. A downturn in the economy would slow growth. The fallout from the coronavirus has had a material impact, with both card networks seeing major declines in transaction volume, although that pressure has eased. However, we don’t see any long-term industry trends that will impede Visa’s ability to maintain its growth in the coming years. The scalability of the business should still allow the company to modestly expand its already ample margins over time.
Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.