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Tuesday, March 25, 2008

Why I like Visa

Some quick facts about Visa Inc. (NYSE:V)

-It has the world's largest retail electronic payments network.

-IPO priced @ $44, open at trading for $59. Having sold 406 million shares, its also the largest IPO to date.

-MasterCard Incorporated (NYSE:MA) priced @ $39 in May ‘06, opened at trading for $41 and is now trading at around $216. More than 400% move in less than two years
Now coming on to why I like Visa (I also do like Mastercard):

-Revenue comes from processing fees. Visa estimates about 42% of its transactions is derived from payment for staples such as groceries and utility bills. So even during hard times, the demand for staples will remain and business maybe even better for Visa if its customers use it to tie over short term cash flow problem

-Below are some statistics from Monetary Authority of Singapore on credit cards in Singapore:
-As you can see from above, the number of accounts (main cardholders) and amount of spending (billings) have been increasing at significant pace in the past 19 years. While not all countries are growing at such a rate, the overall business in this industry is still a very good one.

-Credit cards business is very lucrative. I know because I used to be an analyst in this sector. There are several lines of revenue sources and year on year growth is respectable even during times of slowing economy.

On the revenue front, card issuers are constantly thinking of ways to increase card utilization e.g. promotion and tie-ups with retailers, utilities payment etc. across various customer segments, especially targeting the young adults and emerging affluent. In emerging markets like China, I believe card issuance is growing at exponential rate and getting these new customers on board is priority.

On the cost front, card issuers are always thinking of ways to reduce the cost of acquiring new customers or acquiring them via the cheaper channels such as mailers or telemarketing.

Therefore, this business, while competitive, has very healthy profit margins. Excellent business model. If I have the money, this is a good one for long term investment. Meanwhile, I'm waiting for the stock to become optionable...

Mon: Existing Home Sales
Notable earnings: TIF, WAG

Tue: Consumer Confidence
Notable earnings: CMC

Durable Orders, New Home Sales
Notable earnings: ORCL, PAYX

Thurs: GDP
Notable earnings: ACN, APOL, GPN, LEN

Personal Income, Personal Spending, Core PCE Inflation, Michigan Sentiment
Notable earnings: KBH


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