He’s getting heated by starting payments, digital wallets, and cryptocurrencies — and Wall Street is starting to worry.
Mizuho analyst Dan Dolev downgraded Visa’s stock (stock symbol: V) from a buy rating to a neutral rating on Friday and lowered its price target from $255 to $220, citing threats to the company’s growth.
“We are concerned that secular challenges from new competitors will be increasingly influenced by Visa’s volumes,” Dolev wrote in a note published Friday.
Visa is the highest Baron Stock pick for 2022, trading at thirty times projected earnings of about $7 per share in the current fiscal year. Andrew Barry writes that the company is a “powerhouse in payments,” processing more than $12.5 trillion in transactions annually. A lot of Wall Street rates the stock as a buy with an average target price of $271. Shares were trading around $217 on Friday, down 1.3%.
However, threats to Visa and its main competitor
Master Card Credit Card
(MA) is increasing as consumers switch to new payment platforms and digital wallets that can bypass card networks or slow their revenue growth.
Among Dolev’s concerns: The growth drivers of people giving up cash for cards and online payments may decline by the end of this decade. This shift from cash has accelerated during the pandemic with the revival of online shopping, debit and other forms of card payments. But that trend has now rebounded so much that it won’t help Visa much beyond 2030, which could affect 45% of Visa’s historic revenue growth, Dolev estimates.
Visa also faces more competition for card transaction volumes as competing payment platforms gain momentum. One threat is Plaid, a startup that is building a bridge for payments between banks, consumers and merchants, potentially dispensing with Visa as an intermediary.
Dolev wrote, “Blaide…is a real mid-range threat to the business of the Visa adversary.” “The concern is that over time, Plaid could offer an alternative to Visa discount bars.”
Visa tried to buy Plaid for $5.3 billion in early 2020 but backed out after the Justice Department sued to block the deal on antitrust grounds.
Other threats to Visa include peer-to-peer payments through digital wallets, including stablecoins and cryptocurrencies that may bypass its network; A new real-time payment system called FedNow; and payment services such as “Buy Don’t Pay Later” or BNPL that can also cut card networks.
The confluence of threats could reduce Visa’s revenue growth by 1 to 2 percentage points per year through 2024, Dolev estimates, driving growth to nearly 13% from the 15% now included in the consensus forecast. It cut its revenue forecast for fiscal year 2023 to $32.1 billion from $32.5 billion.
The visa, of course, does not stand still. In an interview with Vasant Prabhu, Visa’s Vice Chairman and Chief Financial Officer, Vasant Prabhu, said the company offers account-to-account payment services, similar to Plaid. Baron.
He said, “It’s nice for people to come up with alternatives like Plaid, but we offer similar services and make the discount more usable.”
He added that BNPL’s premium payments may continue to run on Visa’s discount bars, generating revenue for the company. “Time will tell if BNPL is a viable way to extend credit and how attractive it is,” he said. “Our view is that it is a net positive for us.”
He said Visa’s opportunity to convert cash into digital payments is also much greater than it is in the consumer space, including in areas such as paychecks, insurance payments, international money transfers, or remittances. “The volume of cash transfer other than consumer payments is 10 times greater in other categories,” he said.
Transactions made in cash now could also get a bump from the increased use of the “click-to-pay” discount in the US and the company sees revenue opportunities in cryptocurrencies and stablecoins – tokens designed to maintain a stable $1 value.
Visa works with cryptocurrency exchanges such as Coinbase Global (COIN) to facilitate transactions; Account holders can use crypto as funding for a card payment after selling the crypto and convert it to cash automatically, for example. Visa has partnered with more than 50 crypto wallet providers and is developing a “native digital currency” settlement on its card networks.
“What we can do is be the bridge between the cryptocurrency economy and the cash economy,” Prabhu said.
Furthermore, Visa is working with banks to develop crypto deposit accounts. “A lot of banks understand that their customers want it, and they realize that they may lose deposits as funds move from bank accounts to cryptocurrency platforms,” he said. “There is a lot of interest in figuring out how to do that.”
But this will not happen overnight, as banking regulations for cryptocurrency are not keeping pace with customer demand.
However, investors may need more convincing that Visa’s new revenue streams will offset potentially slower growth in its core business. Visa stock is up just 2.6% from a year ago versus a 23.5% increase for the S&P 500.
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