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Visa Stock Dips as BNPL Heats Up

Stock MarketsSep 06, 2021 09:30PM ET
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© Reuters. Visa Stock Dips as BNPL Heats Up

Visa Inc . (NYSE:V) stock has fallen under some considerable pressure of late, amid the continued rise of the Buy Now, Pay Later (BNPL) trend.

BNPL firms such as Affirm Holdings (AFRM) could take a bite out of the volume of credit card fees charged over the coming years, even as consumer debt levels look to rise further. I am neutral on Visa stock.

Shares of the leading credit card company now find themselves in correction territory, down over 10.9% from all-time highs hit back in late July, and up a mere 3.4% year-to-date. (See Visa stock charts on TipRanks)

In a frothy stock market, Visa's correction definitely seems like a timely opportunity to bag a bargain, but investors should weigh the risks brought forth by the disruptive BNPL firms.

Such disruptors may continue joining forces with major retailers, with the hopes of offering consumers the ability to put on debt without compounding interest.

Visa Stock Takes Hit as Affirm, Amazon (NASDAQ:AMZN) Join Forces

The BNPL hype doesn't appear to be going anywhere, especially following Friday's news that Affirm has partnered with e-commerce behemoth Amazon (AMZN).

Big credit card companies, most notably Visa and MasterCard (MA), have been raking in the profits over the past several years. The ascent was given a boost, as consumer debt levels have increased over the last couple of years.

Although the post-pandemic environment bodes well for the credit card giants, BNPL firms seem poised to swoop in to steal some of the Big Two's lunch.

Visa, being bigger than MasterCard, may have more to lose from the continued rise of BNPL, as its previously wide moat looks to be put to the test.

With interest rates essentially at the floor, there's now room for disruptors to move in and offer a better value proposition to consumers, who were already fine taking on considerable amounts of credit card debt at a 15-20% annual percentage rate.

Visa Fighting Back

The Amazon-Affirm partnership is a big deal, but Visa isn't on the ropes yet. Visa has a BNPL offering of its own with Visa Installments, which is rolling out in Canada — a market with a massive appetite for consumer debt.

Could Visa's response to the growing demand for BNPL help ease recent pains?

Only time will tell. Still, I wouldn't discount the company's ability to defend itself. Payments and technology are Visa's turf, after all. And it is comforting for investors to know that arguably the biggest disruptive deal in BNPL that could have happened has already happened, and is (likely) already baked into the share price.

Wall Street's Take

According to TipRanks’ analyst rating consensus, V stock comes in as a Strong Buy. Out of 21 analyst ratings, there are 20 Buys and one Sell.

The average Visa price target is $280.90. Analyst price targets range from a low of $250, to a high of $305.

Bottom line

Despite the BNPL pressures on Visa stock, analysts remain overwhelmingly bullish.

Could downgrades be in the cards? Probably not. Visa has already been punished accordingly in response to Affirm-Amazon, and it has tools to defend itself.

That said, after a 10% dip, it's hard to be bullish. Should the sell-off in the name intensify into year-end, things may change.

Disclosure: At the time of publication, Joey Frenette had a position in Amazon.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Visa Stock Dips as BNPL Heats Up
 

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