Visa Remains Value Stock, but to Return to Value-and-Growth Status It Needs New Payment Strategy

Visa (V) stock delivered solid returns in 2020, but ever since it has been wavering around its $220 flatline prompting investors to guess on its further direction. What happened with once arguably the most loved cyclicality neutral stock of a plethora of international investors?

Visa is one of the most respected global payment powerhouses since 1958. However, the ongoing shift in the paradigm of payments where Visa seems to be quite indecisive so far, would make the company's outlook more uncertain than many think. Unquestionably, Visa has a lot of fundamental power within the payment processing industry and they will remain steady for the foreseeable future. The problem, however, is that Visa's business model directly contradicts the growth of Web3, since the current Visa’s payment infrastructure assumes a centralized uniprocessing network connecting merchants and customers (B2C, rather than P2P). This differs from PayPal (PYPL) or a Block (formerly Square, SQ) which additional stream of income will come from offering everyday consumers access to decentralized finance networks through Venmo and Cash App.

Payments Volume Growth reflected the recovering payments demand from lockdowns early in 2021, where Visa operationally has been a steady performer. Revenue results were strong during Q4 2021 YoY. This had much to do with schools and businesses reopening after the first wave of the pandemic. Since then consumer spending has been strong. A little over half of Visa's revenue for fiscal 2021 came from international operations.

With an operating margin over 65% and net margins above 51% for 2021, Visa looks like a winner by a narrow margin from MasterCard (MA), whose operating margin accounts for 53% and net margin of 46% for the first 9 months of 2021.

In terms of fundamental valuation, Visa currently trading at P/E of 47x and P/S of 20x looks somewhat expensive not only against a more Web3-friendly PayPal with P/E of 61x but P/S of ~12.5x, but also vis-a-vis the above mentioned MasterCard at P/E of 42.5x and P/S of ~19x. That perfectly explains the premises of the directionless market behavior of the former. For Visa to gain momentum it is necessary to present an updated and more contemporary investment strategy.