On Jul 6, 2021, Visa Inc (NYSE:V). V hit a 52-week high of $240.61, before closing the trading at $239.6. The catalyst in the share price rise must have been the company’s recent announcement to acquire Tink, the European fintech player in the open banking space. Also, there is a growing investor optimism on the back of higher consumer spending, improving employment levels and restoration of travel that should buoy this payment facilitator’s business.
Over the past year, the stock has gained 24% compared with its industry’s growth of 6.7%.
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What’s Driving the Stock?
Last month’s development that Visa will buy Tink was taken positively by investors. Tink with a wide market presence in Europe is the perfect fit for Visa to give it a firm establishment in the open banking space, which is catching up fast in the region. The deal will open up a new revenue stream for the company, away from its traditional transaction-based business. This deal is all the more cheered as Visa failed in its earlier attempt to acquire Plaid, an open banking platform in the United States. The deal was blocked by regulators on concerns that it will give Visa a monopoly in the digital debit card space.
Also, consumer spending, which dried up last year due to coronavirus, picks up this year to increase the company’s revenues. People are spending more, courtesy of government-sponsored pandemic stimulus and pent-up demand. This already showed up in Visa’s first half of fiscal 2021 results. The company registered growth in payments volume (the primary driver of service revenues) and the number of processed transactions (the key catalyst for data processing revenues).
Though cross-border travel remains subdued due to coronavirus-led friction in some pockets of the world, it will be just a matter of few months for travel frequency to resurge. Already the trend is on the upswing in specific parts of the world where vaccination is successfully administered. Cross-border revenues are a major component of the company’s top line and carry higher margins. However, much of the COVID-induced pain is now behind and cross-border activities will gradually improve in the coming quarters, thereby bumping up growth.
Cryptocurrency: Catalyst for Future
Visa is also seeing a enduring growth potential in cryptocurrencies. It is leading the pack among the payment processors to allow crypto transactions in its network. The company is allowing customers to make their transactions in USD Coin (USDC), a stable coin powered by the Ethereum blockchain. This means that earlier the crypto had to be converted into fiat money for transaction but Visa eliminates that need. Hence, transactions in crypto became hassle free.
Going forward, the company intends to add more stable coins to its settlement platform. This effort to make it big in the digital currency space makes investors upbeat about the stock as central banks around the world are adopting digital currencies. Being in the front row with banks will likely fuel Visa’s business growth.
Visa is best poised to gain from the shift of payments to the digital mode. At present, a bulk of the $17 trillion in consumer spending and $15-$20 trillion of business spending are still done in cash and checks. Other players working to digitize the domain are Paypal Holdings (NASDAQ:PYPL), Inc. PYPL, Mastercard Incorporated (NYSE:MA) MA, Square Inc (NYSE:SQ). SQ et al.
Visa currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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