Introduction
Visa (V) continues to deliver phenomenal shareholder returns year after year and thus far 2018 is no exception. Over the past year, Visa has appreciated 45% and currently sits at a 52-week high. Visa has become a top-performing perineal large-cap growth stock that continues to deliver despite emerging threats in the digital payments space, blockchain technology and maturing markets in the traditional payments space leading to slower growth prospects. I’ve been reluctant to get behind the stock of Visa considering its valuation, slowing growth and trends away from the traditional credit card space among the younger demographics that embrace PayPal (PYPL) and PayPal’s Venmo for payment options and exchanging payments between multiple parties. Furthermore, Amazon (AMZN) may be disrupting the credit card transaction space with its potential launch of Amazon financial services and Amazon Pay. Despite Visa’s huge move over the past year, growth has become worrisome and touched down to single digits before bouncing back to double digits over the last two quarters. I feel that shareholders have become overly enthusiastic about Visa’s growth prospects. The stock has appreciated over 45% during the past year, boasts a P/E of over 35 and a PEG of over 2.0 in the midst of a frothy market. This scenario doesn’t provide a great benefit-reward profile at these levels in my opinion.
Pay Pal Interview and Emerging Threat:
PayPal has been a growing threat over the years and Jim Cramer interviewed PayPal’s CEO Dan Schulman on Mad Money regarding the prospects and future of the payments space as he sees it, domestically and internationally.
Per PayPal’s CEO Dan Schulman
“The entire financial systems’ ecosystem is moving more rapidly than ever before away from cash and towards digital payments because of the explosion of mobile phones.”
“If you look at markets like China or India, India really going through demonetization right now, they never really had point of sale terminals, credit card and what they’re trying to do now is do everything through digital” Â
“When you go through digital its’s a more efficient system, there aren’t middlemen in-between to take part of the transaction and there’s less corruption”
“For government benefits, there’s much less leakage if it can go directly from the government right into a digital wallet of the consumer”
“You’re seeing leap frogs over what were credit card infrastructure or checking”
Jim Cramer:
“Nothing against Mastercard (MA) and Visa, they’re still great growth stocks but the growth of the future is yours [Pay Pal].”
This interview shed light on the potential pivot away from credit card infrastructure to digital payments and money management in the digital age, particularly in India and China. PayPal has witnessed explosive growth in the digital payments space and peer-to-peer money management and transfer via its Venmo platform.
Potential Blockchain Disruption and Key Opinion Leaders:
Another huge potential disruption in the credit card transaction space lies in blockchain technology that underpins the cryptocurrency markets. This technology is applicable to enterprise applications using its decentralized database, open ledger and incorruptible transactional capabilities. Financial intuitions are already engaging in pilot programs to migrate away from traditional networks like Visa’s. American Express, for example, is exploring this technology with Ripple’s blockchain technology. Visa has a partnership with BTL Group (BTLLF) and IBM (IBM) exploring this superior technology for potential use. IBM is aggressively stepping into the enterprise blockchain solutions space as well.
