Credit card superstar Visa (V -0.23%) isn't as old as you might think, at least as a stand-alone stock. Fans may not realize that once upon a time, Visa was the credit card arm of Bank of America, and it was spun off with its own initial public offering (IPO) in 2008. Since then, it's had a fabulous run, gaining more than six times the S&P 500's gains in the same time period.
Visa currently has a market cap of $560 billion. To join the trillion-dollar market cap club, it would almost need to double. Can it do that over the next decade or so?
More than a name on a credit card
Visa processes more payment volume than any other credit card network. It processed more than $15 trillion over the trailing 12 months and has relationships with more than 14,500 financial institutions worldwide. That means it has access to more customers, and it powers 4.3 million cards globally. Every time a customer swipes a card, Visa takes a fee.
In general, as it benefits from shopping and payment trends, Visa's performance mirrors the economy. However, despite volatility in the economy over the past few years, Visa has been demonstrating solid growth.
In fiscal 2023, revenue increased 11% over last year, while payments volume increased 9%. In the 2024 fiscal first quarter (ended Dec. 31, 2023), revenue was up 9%, and payments volume increased 8%. Part of that is due to how widespread Visa is, but there's more.
There's so much financial technology out there today, and Visa is taking a leading role in developing digital financial infrastructure to maintain its dominant position in its industry. These actions are cementing Visa's powerhouse role in shopping and payments and paving its future roadway.
Growth drivers in a changing world
Visa now has three segments that work together: Its core payments business, new flows, and value-added services.
The core payments business is the credit card network that connects a customer's financial institution with a merchant client. When you shop, Visa is the gateway for your bank to transfer funds to the store. That's why Visa credit cards are co-branded with an issuing bank that approves the customer for the credit card.
New flows are other payment options that Visa enables, such as Visa Direct, a global digital payments network. One example is Visa's new partnership with Meta that allows content creators to send earnings straight to a Visa debit card. New flows are one of Visa's highest-growing segments, up 20% year over year in the 2024 fiscal first quarter.
Value-added services are other services Visa offers, such as data analytics for merchant clients. In order to provide an expanded set of services, Visa has been acquiring global payment networks, such as its recent acquisitions of digital network Pismo and Mexico-based Prosa.
Doubling market cap
To reach a market cap of $1 trillion, assuming its price-to-earnings ratio remains stable at 32, net income would have to increase from $18 billion today to reach $31 billion. That implies a compound annual growth rate of only 5%. Net income increased 15% in 2023 with a CAGR of 21.5% over the past 11 years, so that seems more than doable. Of course, if the price-to-earnings ratio changes, that equation will change, too. But Visa's valuation has remained relatively stable over the past 10 years, with an average price-to-earnings ratio of 34.
The likelier scenario is that Visa will become a trillion-dollar stock much sooner than 2035, implying that its stock will double much faster as well. It has many growth drivers and increasing profits, and investors can be confident about its ability to keep its top spot in payments. It also pays a dividend. Visa is a top market-outperforming stock that should reward shareholders through 2035 and beyond.
