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Is Visa the Long-Term Stock for You?

By Nicholas Rossolillo - Apr 30, 2021 at 7:03AM

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This is a great long-term growth story, but there are other options out there too.

Visa (V 0.12%) was hands-down one of the best growth stories of the 2010s, with a gain of more than 700% over that decade. However, the 2020s haven't been nearly as kind so far. At recent prices, shares are up only 24% from the start of 2020, trailing the S&P 500's 30% return. 

Of course, the pandemic is a big reason why. Payments volume -- especially those tied to travel and in-person purchases, which Visa is highly reliant on -- took a massive hit in the last year. Business is on the mend and there's promise Visa will return to growth in the very near future, but this isn't the only digital payments stock to look at for the long term.

Someone pictured off screen inputting a credit card's info into a laptop.

Image source: Getty Images.

A return to growth is imminent

Since revenue took a 5% tumble in fiscal 2020 (which ended Sept. 30), Visa has been inching its way back to growth in fiscal 2021. For the second quarter of its fiscal 2021, Visa featured an 11% year-over-year increase in total payments volume, a 2% year-over-year decline in revenue to $5.7 billion, and a 2% decline in net income to $3.0 billion. You read that correctly -- even while dealing with the ongoing effects of the pandemic, Visa generated a whopping net profit margin of 53%.

And starting with its fiscal third quarter, Visa will begin lapping depressed financial results from when the pandemic first started. Management isn't providing any guidance, but since Visa's revenue and net income tumbled 17% and 23%, respectively, a year ago, the company will generate a fair amount of growth as it clears this low hurdle. The company also continues to ink new deals with banks, lenders, and other merchants. One notable news item was the announcement that Airbnb will be using Visa Direct (an electronic funds transfer service) to help get Airbnb's hosts paid quicker.

Visa is so big that single deals like this won't do much to move the needle all by themselves. Nevertheless, this is a highly relevant business in the digital age, and one that could be in store for a rally if you're looking for a bet on a gradually reopening economy. With a lot to gain from consumers getting back to vacationing, eating out, and shopping at stores again, Visa will remain a growth story in the decade ahead. 

But blockchain, cryptos, and digital wallets mean there are better long-term values

That doesn't automatically mean Visa is the best long-term stock for you, though. In fact, Visa is already the leader in the digital payments and fintech industry, so it may not have the most to gain as technology continues to reshape the world economy. Specifically, disruptive technologies like blockchain and cryptocurrencies, digital wallets, and app-based banking are some of the highest-growth businesses right now.

Some of these developments could pose serious risks to Visa and its peer Mastercard in the 2020s. Blockchain and crypto platforms were developed to decentralize money movement and eliminate the need for third-party facilitators -- those third parties being Visa's network and its card-issuing partners that utilize it. If cryptos continue to gain momentum, the "toll booth" business model Visa and Mastercard rely on could lose out on a lot of transactional fee-based income. 

The same goes for digital wallets (think PayPal's Venmo and Square's Cash App). Peer-to-peer money movement via mobile device is creating new options for a new generation of consumers. While the option to pay with a linked debit or credit card within the app is available, direct movement of cash on balance from one person's wallet to another's circumvents Visa's network.

And speaking of PayPal and Square, both have remained in growth mode throughout the pandemic, and are poised to benefit from the same digital trends as Visa going forward. At only 15 and 13 times trailing-12-month sales compared to Visa's 24, both PayPal and Square stock could be much better long-term values. 

Granted, neither of these fintech companies is nearly as profitable as Visa or as deeply ingrained into the global economy -- at least not yet. Visa has a premium price tag for a reason, so don't write it off. There is plenty of growth to go around as digital financial services continue to expand in the 2020s, and Visa will participate in this expansion. But while Visa should certainly be part of a fintech portfolio, this likely won't be the same market-crushing stock it was last decade.

Nicholas Rossolillo and his clients own shares of Airbnb, Inc., Mastercard, PayPal Holdings, Square, and Visa. The Motley Fool owns shares of and recommends Airbnb, Inc., Mastercard, PayPal Holdings, Square, and Visa. The Motley Fool recommends the following options: long January 2022 $75.0 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Visa Inc. Stock Quote
Visa Inc.
$211.33 (0.12%) $0.25
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$354.27 (1.05%) $3.69
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$101.10 (2.01%) $1.99
Block, Inc. Stock Quote
Block, Inc.
$87.95 (2.28%) $1.96
Airbnb, Inc. Stock Quote
Airbnb, Inc.
$124.51 (2.48%) $3.01

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

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