V Stock Gains on Growth in Electronic Payments
Today’s stock represents another of my favorite strategies to reap above-average returns—investing in “toll booth” stocks. These are stocks that stand to gain immensely from the rise of the digital economy and the increasing adoption of mobile phones, as users shift away from cash payments.
These companies make loads of money by charging a small fee to a large number of customers who use their network to make electronic payments. Imagine this happening every single day, many times over, and around the globe. Investors in these companies can see their money multiplying manyfold. These businesses can make some of the best investments and deliver great returns to investors year after year.
A case in point is Visa Inc (NYSE:V), a global leader in processing payments, whose vast network connects consumers, merchants, financial institutions, and businesses in more than 200 countries. Its goal is to be the best way to pay (and get paid) for everyone everywhere, and the company is preparing itself well to achieve this goal in a world that is increasingly adopting electronic payments. The fact that the majority of the world’s transactions still take place in cash provides a mammoth market opportunity for Visa and, subsequently, for Visa stock investors.
As per a recent study by Capgemini and BNP Paribas, digital payments are expected to reach 726 billion by 2020, led by growth in emerging markets. Non-cash payments have increased in volume due to the rise in the popularity of digital payment services. Non-cash transactions between 2014 and 2015 rose by 11.2%, registering the highest growth rate of the past decade. However, the report highlighted that, for low-value transactions, cash still remains the preferred means of payment. (Source: “Digital Payments expected to hit 726 billion by 2020 – but cash isn’t going anywhere yet,” CNBC, October 9, 2017.)
Given the increasing growth of digital transactions, Visa is one of the few players that is well positioned to gain from these trends. The company is most likely to benefit from the growth in emerging markets, which has overshadowed the growth in developed economies.
In Visa’s recent quarterly results announcement, management also listed the company’s initiatives in the digital products landscape.
“Visa Checkout,” which is an online payment feature that makes online shopping more convenient, holds immense potential for the company. Visa has also launched its new mobile solution “mVisa” in Kenya and Nigeria, in addition to getting into a global partnership with the card-issuing platform Marqeta, Inc.
Visa extended its partnership with Paypal Holdings Inc (NASDAQ:PYPL) to Europe in July, and the company also announced partnerships with Fitbit Inc (NYSE:FIT) and Garmin Ltd. (NASDAQ:GRMN) to enable digital payments through their wearable devices.
The company is strengthening its digital product portfolio and has been reporting great quarterly results. When Visa announced its Q4 and full-year results last month, it showed solid business performance, with good levels of domestic growth in multiple countries, including India, Russia, and Australia.
Visa delivered a profit beat on healthy payment volumes and reported an 11% increase in Q4 profit, driven by its purchase of Visa Europe and the growing usage of its payments network. The company’s push payments product, “Visa Direct,” continued to perform very well and saw accelerating volumes, with over 75% year-over-year growth driven by North America and the Central and Eastern Europe, Middle East, and Africa (CEMEA) regions.
Visa should continue to be a great secular growth story, and favorable trends will likely keep pushing V stock higher. Over the last five years, Visa stock has returned more than 200%. Year-to-date, it has gone up by more than 40%. The following stock chart shows this impressive rise.
Chart courtesy of StockCharts.com
The company’s new partnerships have been a strong contributor to Visa’s growth, and big contributions have come in the first three quarters of the year from USAA Savings Bank and Costco Wholesale Corporation (NASDAQ:COST). Visa’s management team is very optimistic about the global migration from cash to non-cash payments. All of these favorable trends should translate into higher value for V stock in the coming years.
Visa is one of the world’s largest electronic payments network based on payment volume, number of transactions, and number of cards in circulation. By investing in this toll-booth stock, investors could reap above-average returns because the company is well placed to gain from the fast-changing payments landscape.
Visa stock is a growth story that should continue to get better as more users hop on board the company’s payment network, which is hard to replicate.
The company is laser-focused on the future, and is getting ready to capitalize on the disruptions taking place in the payment space around the world. It is taking all the right steps to lead the world trend of moving from cash to digital payments. The current dominance of cash transactions presents a large addressable market for Visa, and gives V stock a lot of room to grow. As Visa stock is trading near record highs, investors could consider building a position on the dips.