Shares in Visa (NYSE:V) fell then rose again after it reported what looked like a bad quarter. It was almost as if analysts were expecting happy days in V stock, then realized too late that there’s a recession going on.
For the quarter ending in June, the third of its fiscal year, Visa earned $2.4 billion, $1.07 per share, on revenue of $4.8 billion. Earnings were down 23% on revenue that was down 17%.
This should have surprised no one. (Travel was down? You don’t say!) But the stock dropped $3 a share overnight, recovered the loss the next day, then fell again overnight.
Forget the NBA bubble. The one around Wall Street is impervious to the economic virus.
Seeing Over the Horizon on V Stock
Investors were grabbing V stock with every downtick. It’s because they see a long-term impact from the novel coronavirus, one that favors electronic payments.
Newer technologies, where cards aren’t present or just tapped against a screen, were both hot during the quarter. Electronic payments went up 25%. Visa alone shipped 80 million cards that can use radio-based “tap” systems such as Apple’s (NASDAQ:AAPL) Apple Pay. Transactions through Visa Direct, its “disbursement” product, rose 75% as many people got their government aid that way.
These tweaks to the revenue mix, favoring higher-profit operations, meant Visa could beat analyst estimates slightly. The weakness, in total transactions and especially cross-border payments, was seen to be temporary. The strength, new types of cards and more-profitable payment streams, was seen to be permanent. That’s what CEO Al Kelly predicted on the company’s conference call and the analysts bought it. RBC Capital reiterated its “buy” call.
Better Than a Bank
Credit cards were originally seen as an adjunct to banking. What’s now Visa got its original name, BankAmericard, for its connection to Bank of America (NYSE:BAC).
Over the years shared processing was spun-out from banking, creating today’s Visa and MasterCard (NYSE:MA) companies. The biggest banks, especially JPMorgan Chase (NYSE:JPM), Citicorp (NYSE:C), Bank of America (NYSE:BAC), and Capitol One (NYSE:COP), remain huge factors in the business. But increasingly processing is separate, especially when it comes to merchants collecting cash.
Today, it’s also a better business. Over the last few years, shares in JPMorgan Chase, the country’s biggest bank by market cap, are down nearly 14%, while those of Visa are up 8.4%. The tail is now wagging the dog, with moving the money at V now worth 30% more than having the money at JPM.
What this means for the future is that Wall Street is no longer anywhere near Wall Street. Visa is based in San Francisco. Intercontinental Exchange (NYSE:ICE), which owns the New York Stock Exchange, is in Atlanta. CNBC abandoned its set on the NYSE “floor” when the pandemic struck and hasn’t returned to it, although the floor has reopened.
Visa, Mastercard, and their associated credit processors are also no longer the leading edge. They’ve been replaced by a host of new “fintech” companies. It’s not just Paypal (NASDAQ:PYPL) and Square (NASDAQ:SQ), which replicate processing features, but Lending Tree (NASDAQ:TREE), Lemonade (NASDAQ:LMND), and privately-held Robinhood transforming the world beyond payments.
The Bottom Line
Visa is now America’s biggest banking company and the most future-proof banking investment you can make now.
The company’s $436 billion in market cap, which sells at almost 35 times trailing earnings, means it has the financial firepower to buy smaller fintechs and stay relevant. That’s something even the biggest bank processors can’t say.
But as the lockdown eases, first in Europe and Asia and, at some point, in the U.S., Visa needs to use that firepower. The long-term future lies with companies that cut out even the payment middlemen.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.