Credit-card giant Visa (NYSE:V) leads the industry with its global payment-processing network, and it has seen its shares climb substantially since its initial public offering less than a decade ago. Yet despite strong share performance in 2015, Visa has had to endure some bad news that raised concerns among long-term investors. Let's look more closely at Visa's worst headlines in 2015.
$6 billion settlement comes under threat
For more than a decade, Visa and rival card network provider MasterCard (NYSE:MA) have fought lawsuits from merchants alleging price-fixing and other prohibited practices. A 2012 settlement worth $6 billion was approved late in 2013, but many merchants are still fighting against the deal.
In July, the antitrust settlement faced attacks from a new angle, as a lawyer for the law firm representing MasterCard was found to have had extensive email communications with lawyers for the plaintiffs. The revelation led those retailers who disagreed with the deal to argue that a potential breach of confidential information should nullify the settlement, and a similar case in August concerning American Express (NYSE:AXP) did lead to a rejection of a separate settlement.
As a result of the unusual breach, Visa and MasterCard had to deal with new litigation, with a federal appellate court hearing arguments in September, and could face further delays in putting the settlement behind them. For Visa, the fact that it was MasterCard's counsel that could kill the deal is especially unfortunate.
Strong dollar held back profit, sales growth
The strength of the U.S. dollar has held back many multinational corporations, and Visa suffered its share of damage from the greenback in 2015. For the full fiscal year, total volume rose nearly 10% in constant currency terms, but it grew less than 1% in dollar terms because of weak foreign currencies. Similarly, payments volume took a hit of about six percentage points from the strong dollar, and cash-volume growth suffered the largest swing, from up 6% in constant-currency terms to down 7% when measured in U.S. dollars.
Unfortunately, Visa doesn't see the dollar weakening anytime soon. Nevertheless, even just seeing the strengthening trend slow somewhat could leave Visa in a much better position than it's in currently.
Competition leads to fee discounting
One high-profile win for Visa came early in the year, when Costco Wholesale (NASDAQ:COST) decided to end its exclusive relationship with American Express and instead go with a Visa-branded card from Citigroup. That sounds like good news, but subsequent reports suggest that the deal won't be nearly as lucrative as some had hoped immediately after it was announced. According to reports, Costco was able to negotiate extremely low fees that could make it difficult for either Visa or Citigroup to earn large profits from the deal.
Because of Visa's business model, it will face a lot less risk than Citi does, as the bank will have to face the prospect of default from its cardholders. Visa can earn its ordinary stream of revenue from purchase volume. Yet if Costco was able to get a better deal than most of Visa's other customers, then it goes a long way toward explaining why American Express wasn't willing to follow suit -- and why what seems like an unqualified win for Visa might not turn out as well as many investors want.
Visa had to deal with its share of bad news in 2015, but it didn't hold the stock back. With so many positives going for it, even these news items haven't been enough to derail Visa's success story.