Visa's (V 0.30%) stock has been on an incredible run since its IPO on March 19, 2008. Shares are up more than tenfold since that day as investors have come to realize that the credit card giant is perhaps the biggest beneficiary of the trend away from cash and toward digital payments.
Yet despite this torrid growth, plenty more gains still likely lie ahead for Visa and its shareholders. Here's why.
1. The relentless growth of e-commerce
As online purchases increase, so do the number of digital payments. In fact, Visa CFO Vasant Prabhu once said that for online sales, "the propensity to use a Visa card is twice as high as a face-to-face transaction." As retail sales continue to migrate to online channels, Visa stands to benefit.
This makes Visa a somewhat under-the-radar play on the growth of e-commerce. It's a massive and rapidly expanding global market -- one that will grow to nearly $5 trillion by 2021, according to eMarketer. That leaves plenty of growth still to come, even for a $320 billion behemoth like Visa.
2. An enormous opportunity in B2B payments
Another area where Visa has tremendous room for growth is in the business-to-business (B2B) payments arena. Incredibly, the B2B payments market is multiple times larger than the online retail market. In fact, Mastercard (MA 1.09%) CFO Martina Hund-Mejean estimates it to be a $124 trillion opportunity.
B2B transactions are still largely conducted via ACH, check, or cash. Yet Visa is gaining share in this area with its B2B offering, the Visa Ready Program for Business Solutions, which helps companies quickly integrate an array of Visa payments options, including accounts receivable and supplier payment systems.
By helping businesses of all sizes streamline their B2B payment processes, Visa is well-positioned to capture a far larger share of this immense market in the years ahead.
Check out the latest earnings call transcript for Visa.
3. Bountiful capital returns
Visa's dominant competitive position is built upon scale advantages and network effects that are nearly impossible for would-be competitors to match. Moreover, operating in a de facto duopoly with Mastercard allows Visa to generate operating margins that typically exceeds 60% -- an almost unheard of level that few businesses can achieve. In turn, Visa produced more than $13 billion in operating profit and $12 billion in free cash flow over the past year.
Better still, Visa returns much of this capital to shareholders via stock buybacks and a steadily rising dividend. The company repurchased $2.3 billion worth of its stock in the first quarter alone. Its board of directors also recently authorized a new $8.5 billion share-repurchase program to buy back even more shares going forward.
All told, Visa's enormous growth opportunities in e-commerce and B2B payments and bountiful capital returns form a powerful wealth-building formula for long-term investors -- one that should help the payment-titan's stock continue to hit new all-time highs in the years ahead.