Visa Q4 numbers & purchase of Visa Europe

A Visa is an annoying stamp that you need when you are going to visit a place, even more so if you are going to spend a short holiday there and spend your money. It is a less annoying when you are using a card in far flung parts of the world and are paying for something rather than carrying cash. In their "Our business" segment on their website, I think that they sum it up perfectly with the ease of use: "We have a simple and unwavering vision that can be traced back to our beginnings in 1958: To be the best way to pay and be paid for everyone, everywhere. We know that every Visa transaction is a promise. Whether it's a street vendor in Brazil selling food to make a living or a fisherman in Rwanda paying his daughter's school fees, we want to provide the most secure and seamless payment experience possible."

Whilst Visa traces its roots back to the card based revolving credit feature in 1958, the listed entity as we know IPO'ed in 2008 (late March 2008). It is young, by listed company standards, younger than Google. Before that the major banks owned the company. The company topped 1 trillion Dollars in processing back in 1997 for the first time, the company had issued 1 billion cards by the year 2000. Remember when everyone was worried about YTK? And remember when "things" were not YTK compliant? Or were? Nowadays Visa has 2.4 billion cards in use across their networks, and processed over 103 billion transactions last year. The aim of Visa and the other switching payments technologies is to be able to reduce or eliminate the reliance on cash that humanity has built up over the centuries.

It is a difficult concept to grasp, if your childhood memories are of counting pennies and sticking them into your piggie bank, heading to the store (general dealer?) and buying gum or anything else. The idea of transacting with a card, or nowadays a smart phone and not "seeing" the cash is foreign for many folks around the world. There are some countries that are looking to become cashless societies, Denmark is an obvious example. Equally Sweden and Norway are looking to dump cash, Denmark are doing away with cash registers next year in all places other than essential services.

If you don't need it at the supermarket, you certainly don't need it at the hospital, right? Card based technology is moving quickly towards electronic (Apple Pay and the like) payment methods and equally biometrics, which Visa is testing on ATM's here in South Africa in conjunction with ABSA (owned by Barclays Africa). Less cash usage means more utilisation of the switching on the networks, which equals more transactions through more swipes, which equals greater revenue over time.

The quarterly and annual results from two evenings back, in which Visa Inc. Reports Strong Fiscal Fourth Quarter was met with a muted reaction from the market. The stock sank after the numbers, as we pointed out, then regaining all of the losses from yesterday from the session prior. Adjusted full year numbers saw EPS rise 16 percent to 2.62 cents per share, with a stock price of 77 Dollars that hardly constitutes cheap, right? Payments volumes still continue to grow in the early teens, which is pleasing, times are tough out there!

The outlook was clouded by expectations of a three percentage point Dollar headwind on revenue, expectations for 2016 are around 10-12 percent revenue growth. About what the company did last year. All the news around earnings was however trumped (good trumps!) by news that Visa had finally nailed down the Visa Europe transaction, see the investor presentation. The purchase price consists of a 16.5 billion Euro upfront cash (11.5bn Euros) and preferred stock (the balance, 5bn Euros), and then a 4 billion Euro earn out over the coming years. The company intends to raise debt in order to complete the transaction.

The size of Visa Europe is pretty staggering, 509 million more cards added to the network (total now 2.9 billion globally), 16.1 billion more transactions processed, 1.417 trillion Euros in absolute transaction processed. Total group payments volume will now exceed 6.5 trillion Dollars a year, up from 4.9 trillion with the addition of Visa Europe. North America at 42 percent of payments volume and Europe at 28 percent will be the bulk of the business, collectively they represent 46 percent of all the cards in issue. Rich people gonna spend, spend, spend and swipe! I think that from the perspective of the sellers, the European banks, this arrives at an opportune time when many of them are raising cash to shore up their reserves requirements, many European banks have been in the news recently for exactly that. We are pleased that the integration has taken place.

Visa looks expensive, it always does. It is a must own, there are tons of transactions that happen in cash all around the world. Governments don't want cash, neither do banks, they want electronic transactions, there is a holding cost of cash, there is admin and humans involved, that is an expense too. We continue to accumulate the company.