Tokenization And Stablecoin Settlements Will Expand Global Payments

Key Takeaways

• Expanding tokenization and strategic geographical growth are enhancing transaction security, user engagement, and international payment volumes, boosting revenue growth.
  
• Value-added services and stablecoin innovations are diversifying revenue streams and opening new channels, strengthening client relationships and cross-border transactions.
  
• Economic and geopolitical uncertainties pose risks to Visa's international operations, revenue growth, and stability, particularly affecting cross-border transactions and new payment technologies.

Catalysts

Operates as a payment technology company in the United States and internationally.

• Visa is expanding the use of tokenization, with nearly 50% of global e-commerce transactions now tokenized and recent growth in regions like Latin America and CEMEA. This advancement is expected to enhance transaction security and increase user engagement, contributing positively to revenue growth.
  
• The company's push into value-added services, demonstrated by a 22% revenue growth in this segment, is set to deepen client relationships and diversify revenue streams. Continued expansion of services like Pismo for issuer processing and Authorize.net for acceptance solutions could improve net margins and overall earnings.
  
• Visa is capitalizing on stablecoin innovations with new settlement capabilities and product development. As regulatory clarity increases, Visa’s strategic positioning in stablecoin settlements is expected to open new revenue channels and strengthen cross-border transaction volumes.
  
• The investment in commercial and money movement solutions, evidenced by a 6% commercial volume growth and a 28% rise in Visa Direct transactions, indicates a strong pipeline for future growth. Enhancing these capabilities can significantly impact earnings as Visa captures more B2B and cross-border market share.
  
• Visa's commitment to strategic geographical expansions, such as increased merchant acceptance in India, Mexico, and Brazil, and partnerships like Efecty in Colombia, is anticipated to drive international payment volume growth, translating to higher revenue.

Visa Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Visa's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 53.5% today to 55.0% in 3 years time.
• Analysts expect earnings to reach $27.2 billion (and earnings per share of $14.73) by about April 2028, up from $19.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.8x on those 2028 earnings, down from 33.9x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.88%, as per the Simply Wall St company report.

Visa Future Earnings Per Share Growth

Risks

• Visa faces potential impacts from economic uncertainty and fluctuations in foreign exchange rates, which could affect cross-border transaction volumes and related revenue.
  
• Increasing geopolitical risks and trade disputes might influence Visa's ability to operate smoothly in international markets, potentially impacting revenue growth and market expansion.
  
• Visa's business is sensitive to fluctuations in consumer spending and travel trends, which could affect payment volumes and ultimately revenue and earnings.
  
• Execution risks in expanding stablecoin offerings and regulatory developments could pose challenges, potentially impacting Visa's revenue from new payment technologies.
  
• Changes in client incentives and deal timing could lead to variability in net revenues, impacting Visa's financial projections and earnings stability.

Valuation

• The analysts have a consensus price target of $374.094 for Visa based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $410.0, and the most bearish reporting a price target of just $289.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $49.5 billion, earnings will come to $27.2 billion, and it would be trading on a PE ratio of 30.8x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $341.52, the analyst price target of $374.09 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.