Financial services company Visa (NYSE: V) has been in the headlines lately, coinciding with its share price falling. News such as Amazon’s plan to stop accepting UK-issued Visa cards has helped send the Visa share price down by almost 20% since its July highs at the time of writing this article yesterday. The shares are also down on a one-year basis, albeit by a more modest 3%.
Visa is the sort of company I’m happy to buy and hold in my portfolio if I can get it at the right price. Its iconic brand, installed user base of both customers and merchants and strong earning power make it an attractive business to me. Is now the time for me to buy Visa to hold in my portfolio?
A changing payments landscape
The Amazon news doesn’t really bother me at all, or affect my long-term take on the prospects for Visa. I expect it’s a bargaining ploy. In the end, I reckon Amazon needs Visa just like Visa needs Amazon. It does risk hurting profit margins at Visa, though.
More importantly for me, I think it’s indicative of a wider shift taking place in the payments landscape. From the growing prominence of Paypal to the rise of alternative payment methods like Square, the payments industry is undergoing profound change. Once upon a time, card providers such as Visa and Mastercard were insulated from competition because the cost of installing card equipment meant businesses were happy to accept only one or two cards. That has all changed now, which puts downward pressure on profit margins. I think that’s a risk not only for Visa, but also for competitors such as Mastercard and American Express.
A bull case on Visa
Despite that, I continue to see real strengths in the Visa business. It has spent decades building a strong, well-known brand and I think that will have value for a long time to come.
Revenues at the company have more than doubled over the last decade. Last year’s earnings per share were $5.78 – comfortably more than double what they had been just five years beforehand. That sort of performance makes me confident that this isn’t a company on the ropes. In fact, I think Visa’s best days may be ahead. With a growing global middle class and increasing use of digital payments, it has plenty of white space into which to expand its business. Visa’s strong brand reduces the threat of newcomers like Square. In the end, I reckon a company like Visa could well buy promising technologies and roll them out more widely under its more familiar brand.
My next move on the Visa share price
But even after the fall, I don’t see the Visa share price as particularly attractive right now. While I think it’s a great business, its shares trade on a price-to-earnings ratio close to 30 and yield under 1%. The Amazon announcement might be the harbinger of more public tussles to come, which could drive the Visa share price lower. So I will be watching and waiting, to see whether Visa reaches what I consider an attractive price level to add it to my portfolio.
