Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why 2017 was a Year to Remember for Visa Inc.

By Eric Volkman - Jan 18, 2018 at 10:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Record-high revenue and profits, a stock that rose much higher than the S&P -- what wasn't to like during the year for the company?

As I've written recently, 2018 has the potential to be the best year in Visa's ( V -0.61% ) existence as a company. This would be an accomplishment, as last year was a smashing one for the card payment processor. Let's take a short trip down a very pleasant memory lane to explore why.

A year to remember

Little went wrong for Visa last year. In all four reported quarters, revenue and net profit not only grew at healthy rates, they exceeded analyst expectations. Obviously impressed by this performance, Mr. Market bid up the company's stock, which rose by 46% in 2017 and trounced the S&P 500.

Paying with Visa plastic

Image source: Visa.

Several macroeconomic factors helped drive this growth. The American economy remained buoyant, while other regions in the world -- hello, Europe! -- started to grow at more encouraging rates.

On top of that, the world is increasingly favoring plastic as a means of commerce. A recent study from Euromonitor found that in 2016, for the first time, payments made via credit or debit card exceeded those transacted in cash.

In short, the world is making more purchases, and they're more frequently using cards to do so. This dynamic also underpinned the strong performances -- again, both in terms of fundamentals and stock price -- of Visa's rivals Mastercard ( MA -1.63% ) and American Express ( AXP 0.29% ).

But neither of those two grew like Visa. Taking the respective companies' latest-reported quarterly results, Visa grew its revenue by 22% on a year-over-year basis to over $18 billion. That outpaced Mastercard's 18% growth rate (to $3.4 billion) and AmEx's growth rate of 9% (to $8.4 billion).

Amplifying those mentioned macro factors, Visa bulked up in other ways. 2017 represented the first full year of its integration of Visa Europe, which was formerly an independent company despite carrying the same brand name and functioning largely in the same way as its namesake.

The company doesn't break out Visa Europe's results, but the unit is included in its International segment, which saw 37% revenue growth compared to 11% for the U.S. 

2017 also saw the company reap the benefits of several deals with new clients. Most notably, it was the first full year of Visa being the exclusive credit card brand accepted at powerhouse discount retailer Costco Wholesale ( COST 0.14% ). Visa is also the co-branding partner of Costco's proprietary credit card. Visa's brand famously replaced AmEx in both positions.

At one point, the Costco co-branded card -- formerly called TrueEarnings and now known as Anywhere -- represented an estimated 10% of AmEx's total cards outstanding. In other words, the retailer generates a lot of business as a co-branding and exclusivity deal partner, and even for the larger Visa, it's a big deal.

It's not only about the plastic, though. Visa is fully aware that digital payments will be a big part of commercial life in the future.

In addition to pushing its own e-initiatives, Visa reached a pact with former foe PayPal Holdings. This effectively halts what's been characterized as the latter's attempts to steer customer business away from Visa cards. It also allows users of both platforms to transfer funds between them more easily. Although this deal was originally signed in 2016, it was expanded to cover Asia and Europe last year.

Sad to see it go?

Visa entered 2018 well positioned for further growth. The use of credit and debit cards is only going to increase, while the company's deepening involvement in digital solutions should grow its take from such transactions. But even if this year smashes records, it'll have a tough act to follow -- as far as the company is concerned, 2017 was one for the ages.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Visa Inc. Stock Quote
Visa Inc.
$192.58 (-0.61%) $-1.19
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$540.12 (0.14%) $0.74
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$309.80 (-1.63%) $-5.12
American Express Company Stock Quote
American Express Company
$152.75 (0.29%) $0.45
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$183.06 (-0.99%) $-1.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.