Visa (V) Q4 2020 Earnings Call Transcript
V earnings call for the period ending September 30, 2020.
Cryptocurrency has captured investors’ imaginations. When the value of digital currencies like Bitcoin surged a few years ago, some owners of the assets made fortunes by investing only meager sums. The action has cooled off since then, but with over 2,000 different cryptocurrencies out there, interest in finding the next Bitcoin is high.
With the world getting pushed further into the digital realm by COVID-19, investing in the technology backing up crypto assets could be even more lucrative than trying to guess the next big digital asset. And there is no shortage of companies working to develop the market.
While financial transaction technology was the original idea behind blockchain -- and this has gained early traction among established companies -- crypto assets are being developed to help secure all sorts of things, from medical records to copyright protection to digital identification. Investors could take a position in crypto assets themselves (perhaps buying a small amount of a basket of different cryptocurrencies), but investing in companies that are betting on blockchain and crypto asset uptake is the best way to get exposure to the movement. The amount of revenue they derive from the tech is small, but that could change dramatically in the decades ahead.
To that end, here are some of the best cryptocurrency stocks to consider:
[Cryptocurrency] is a new asset class, but like real estate, there's only so much Earth. So it's defined, and therefore this moving price of the commodity is just how much, within this finite class of a commodity, this new asset class, how much people value it or want it.David Gardner, co-founder, The Motley Fool
NVIDIA (NASDAQ:NVDA) and AMD (NASDAQ:AMD) don’t deal with cryptocurrency directly, but these two semiconductor companies are the leading designers of graphics processing units (GPUs). GPUs are best known for powering high-end video game graphics, but they are finding plenty of use in new computing-intensive applications like data centers, artificial intelligence, and the creation of crypto assets.
Cryptography and blockchain creation require a lot of computational power, and GPUs are well suited for the task. Back in 2018, booming cryptocurrency prices were a driving force for NVIDIA and AMD as digital currency “miners” (people using their computers to create new units of digital assets) scrambled to purchase GPUs. That boom is now over, but GPUs remain a fundamental piece of hardware for the management of crypto assets.
Customer relationship management (CRM) software company Salesforce.com (NYSE:CRM) has turned itself into a whole software suite built around customer management and organizational digital transformation. What that transformation ultimately looks like is very different from company to company, though, so Salesforce has quickly been expanding its ecosystem to help its users build the tools they need most.
A couple of years ago, CEO Marc Benioff became convinced of blockchain’s staying power, and the company quickly rolled out new features to help customers build the tech into their operations. If organizations find an increasing need for blockchain solutions, Salesforce is ready and waiting as a key partner.
Facebook (NASDAQ:FB) has long been at work heading up development of a new cryptocurrency: Libra, envisioned as a global financial payments and infrastructure organization for everyone, including the nearly one-third of the world population that doesn’t have a bank account. It has had some setbacks, including the loss of some high-profile members of its consortium like Visa (NYSE:V), Mastercard (NYSE:MA), and PayPal (NASDAQ:PYPL). Government regulators have also expressed skepticism, as cryptocurrency is largely unregulated; some reports indicate Libra might need to be pegged to the U.S. dollar or other government-issued currencies. Nevertheless, work is still in progress, and the company has reported it is revamping its efforts to get the ball rolling.
E-commerce infrastructure and software provider Shopify (NYSE:SHOP) allows merchants using its platform to accept payments of cryptocurrencies. It recently deepened that capability with cryptocurrency payments processor CoinPayments. And in the spring of 2020, Facebook Shops was announced for small business e-commerce. None other than Shopify was revealed as a third-party software provider powering the new online stores. Together, Facebook and Shopify are primed to benefit if adoption of digital assets gains traction among small businesses and entrepreneurs.
If consumer adoption of digital currency starts to take off, digital transaction networks Visa and Mastercard already have the foundation laid to enable the virtual movement of money. The two payment networks have a duopoly on the global digital payments industry. Neither company issues cards or accounts directly, nor do they extend credit, but they operate the network on which currency moves from one account to another. Funds are denominated in a currency issued by a government, but if managing the movement of decentralized digital currencies like Bitcoin becomes viable, both will be waiting in the wings.
Early progress on this front has already been made. Visa partnered with digital currency exchange Coinbase early in 2020 to issue debit cards linked to digital currency wallets, and Mastercard did the same with BitPay in June 2020.
CME Group (NASDAQ:CME) is the world’s largest financial derivatives exchange, allowing investors to trade futures (which allow betting on or securing the future pricing of an asset) and options (which grant an investor the option to sell or buy an asset in the future on a predetermined price) on a diverse list of assets including agricultural and mining products, energy, stocks, and currencies. And speaking of currencies, that’s what makes CME Group a crypto stock.
At the end of 2017, CME became the first market for Bitcoin futures, and at the start of 2020, the company created a market for options on Bitcoin futures. The establishment of an exchange for the well-known cryptocurrency has lent Bitcoin some extra legitimacy, not to mention given owners of the digital currency (including not just individuals but also a growing list of businesses that accept Bitcoin as payment) a way to mitigate risk from changes in price. Bitcoin is currently a small market for CME, but adding more exchanges for crypto assets in the future isn’t out of the question.
None of these stocks are pure plays on cryptocurrency, but it’s important to remember that crypto asset use is far from mainstream. Serious challenges to its adoption lie ahead, including convincing consumers to stop using currency issued by governments as well as regulatory scrutiny from the governments themselves. Nevertheless, if crypto assets gain traction, stocks that are getting an early start in their development could be big beneficiaries in the decades ahead.
V earnings call for the period ending September 30, 2020.
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