Even after its 35% rise in the last year, Visa Inc. (V, Financial) could deliver further capital growth. The global electronic payments specialist has strengthened its competitive position through acquisitions, while its expansion into new services could boost its financial prospects.
Growth strategy
In its fiscal 2019 fourth quarter, Visa agreed to provide a range of additional services to many of its longstanding customers. This could diversify its revenue and increase its exposure to fast-growing segments of key markets.
For example, it renewed its partnership with Bank of America, which now includes the bank’s cash rewards consumer credit card in addition to its debit and credit card services. Visa also renewed its strategic partnership with BBVA in Europe for the next seven years, which could lead to greater collaboration between the two companies.
New customers
Visa signed agreements with challenger banks and financial technology businesses in its fiscal 2019 fourth quarter that could position the company for long-term growth.
For example, it signed deals with mobile banking app N26 in the US and Neo bank in India. Their services could become increasingly popular among consumers and businesses who are seeking increasingly innovative products that cover a wide range of applications. For instance, Neo offers a variety of banking and automated services that can lead to greater efficiency for business owners.
Visa’s focus on working with financial technology partners could catalyze its sales growth at a time when mobile banking is gradually taking the place of bank branches for a large proportion of consumers.
Acquisitions
The company has made several acquisitions during fiscal 2019 that could enhance its position in growth markets. For example, it expects to integrate its Earthport acquisition with its existing businesses in fiscal 2020, while it will extend its pipeline of ecommerce solutions following its acquisition of Payworks. It also plans to grow its client base in the dispute resolution market through its acquisition of Verifi.
Visa’s acquisitions could diversify its business and extend its reach into new growth areas. This may improve its financial performance and reduce its overall risk from an investment perspective.
Potential threats
The uncertain outlook for the world economy could hurt Visa’s financial performance. For instance, the ongoing trade war between the US and China is expected to cause a 0.8% reduction in global GDP in 2020. Alongside other risks such as a slowdown in the Eurozone’s growth rate and Brexit, this may lead to reduced consumer spending levels across the company’s key markets. In addition, the threat of this taking place could cause investor sentiment towards the stock to decline in the short run.
In response, Visa is investing in new services that could differentiate it from sector peers. For example, it launched an option for its cardholders to pay by instalments in June 2019. In addition, the company will enable its cardholders in India to use Google Pay to make secure payments beginning in the first quarter of fiscal 2020. Its 2019 deal with Samsung is set to allow merchants to accept contactless payments with just an app download and no physical machines required. These developments could strengthen Visa’s competitiveness and improve its ability to win new business over the long run.
Outlook
Market analysts forecast that the company will deliver a rise in its earnings per share of 17% in fiscal 2020, followed by growth of 16% in fiscal 2021. Its price-earnings ratio of 34 may not be cheap, but its growth potential suggests that it offers investment appeal.
Disclosure: the author has no position in any stock mentioned.
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