Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Visa Is Plunging on Wednesday

By Matthew Frankel, CFP® – Oct 28, 2020 at 11:41AM

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

The payment processing giant is plunging ahead of its earnings -- why?

What happened

The stock market was broadly lower on Wednesday morning, with all three major averages down by nearly 3% as of 10:45 a.m. EDT. Visa (V 0.25%) was having a particularly rough day, down more than 5%.

So what

Typically Visa is less volatile than most other fintech stocks, and it also has held up much better than most of the financial sector during the COVID-19 pandemic. Plus, Visa actually reports its earnings after today's trading session, so it may seem odd that it's falling so much.

Woman sorting through credit cards.

Image source: Getty Images.

There are two likely reasons for today's move. First, and most obviously, is the general market selling pressure. It's fair to say that a 3% decline in the S&P 500 is likely weighing on Visa's stock price.

Second, Visa announced that it has agreed to acquire fintech YellowPepper. The deal is at an undisclosed price, but given the prices of recent fintech deals (such as PayPal's $4 billion acquisition of Honey), the valuation is likely rather high. It's not uncommon for the acquirer to take a hit in these situations, and that could explain some of Visa's decline today.

Now what

Since we don't know the financial details of the YellowPepper acquisition, it's tough to analyze whether it's a smart move by Visa. However, the company has some proprietary technology that Visa could potentially implement throughout its vast network, giving the company an advantage over rivals. Since Visa reports earnings after today's close, it could be worth watching to see if the company offers any further detail or commentary about this transaction.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and Visa and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

Premium Investing Services

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