Visa (V -0.23%) is the world's leading payment processor and arguably the best-positioned company in the financial sector with regard to its specific industry. That's because Visa has a competitive advantage that won't be diminished anytime in the foreseeable future: its global reach.
There have been countless times when I've tried to pay with a non-Visa card and heard, "Sorry, we don't accept that." I can't think of any time where I've been somewhere that accepted cards and didn't accept Visa. With over 100 million merchant locations globally, it's easy to see why.
Bull market rallies shouldn't cause investors to wonder if they missed the boat on investing in great companies. The better approach is to ask yourself, "Where do I see this company a decade or more from now?" And if it's a great company like Visa, it's all but certain to be a lot more valuable than it is today -- which is what matters most.
The profits keep rolling in
In its third quarter (ended June 30), Visa made $8.1 billion in revenue, up 12% YoY. Revenue and earnings per share -- generally accepted accounting principles (GAAP) and non-GAAP -- beat analysts' expectations, continuing the company's hot streak. What's usually more impressive with Visa is its profits, which came in at $4.2 billion for the quarter.
Visa's able to operate with high margins because much of the investments made to build out its current network happened years ago. And unlike physical products that require additional cost with each unit sold, Visa can process payments with essentially no added cost. As transaction volume increases, its cost per transaction decreases.
Data by YCharts.
Still room for considerable growth
The Consumer Financial Protection Bureau's (CFPB) most recent study revealed there were around 753 million open credit cards in the U.S. at the end of 2021. Visa accounted for 48% of those (363 million), with a considerable distance from second place Mastercard (MA 0.07%) with around 36% (273 million). Globally, it becomes more skewed in Visa's favor. The company operates in over 200 countries with over 4.2 billion cards in circulation.
While the number of cards is important, the volume may matter more since Visa makes money be taking a percentage of each transaction. Visa's 9% year-over-year (YOY) payment volume increase is a slowdown from previous quarters but decent growth nonetheless. The more encouraging growth was its 22% YOY increase in cross-border volume (excluding transactions within Europe).
Cross-border transactions come with higher fees and currently fuel Visa's international revenue. Its $2.92 billion in international revenue was up 14% YOY and accounted for roughly a quarter of its gross revenue.
Even with Visa's current reach, there's still plenty of room for growth globally. Much of the world is still cash-dominant and underbanked by all accounts. Is Visa going to come in and change this anytime soon? Probably not. Is Visa a great candidate to benefit as the world progresses toward digital payments? I'd say so.
Even if Visa can't organically grow in these areas, it has the bank account ($15.6 billion in cash and cash equivalents) to do it with acquisitions. I believe organic growth is highly likely, however. Visa has a simple proposition that's hard to argue against. Potential cardholders know their card will be accepted virtually anywhere that accepts cards; potential merchants know accepting Visa will expand their customer base.
A stock you can feel comfortable holding for the long haul
Visa's recent stock price growth has put the company in "expensive" territory by many metrics. Its price-to-earnings (P/E) ratio of around 30 is higher than the S&P 500's 26.6 and Discover's (DFS 1.62%) and American Express's (AXP -0.62%) 7.3 and 17, respectively. Still, Visa's P/E ratio sits comfortably below Mastercard's 40.
A bull market would probably drive Visa's price up further, but that shouldn't be the deciding factor for long-term investors. Nobody can predict what happens short-term in the stock market, but all signs point to Visa being a stock you can buy and hold and not lose a second of sleep over it. It has all the ingredients for sustained success.
