Liberty

I'm sure people will flock to giving Facebook direct access to their bank accounts.

One more reason it's going to go away over time. Cash doesn't give you cashback rewards or points either. I don't think cash will go away. I think it would get voted down in the supreme court as unconstitutional. Louisiana tried to do something similar in 2011 which would prevent all 2nd hand cash transactions (yard sales and stuff like that). But it was almost immediately revised to only be for cash to precious metals as it was getting called unconstitutional. That's not what I meant. I meant it'll keep going away progressively in an organic way as it has for the past decades, not that it's suddenly going to be banned soon or that it won't remain for some (increasingly rare) uses.

One more reason it's going to go away over time. Cash doesn't give you cashback rewards or points either.

Thank you.

These people tend to overlook what the cost of cash is for merchants. Higher security and transport cost, etc. Cash isn't free either.

https://www.defensenews.com/opinion/commentary/2019/06/03/transdigms-excess-profits-show-weakness-in-supply-chain-management-not-pricing-practices/

https://www.bloomberg.com/news/articles/2019-06-03/open-source-great-satan-no-more-microsoft-wins-over-skeptics

What does that have to do with anything? Manufacturing cars is more complex than rating bonds, yet Moody's is a better business than Ford.

Corteva was spun off. Lots of investors apparently sold the spin and bought the remainco.

Came here to post this. You beat me to it.

Show me a business without risk. I love how the argument is now basically "well, it has risks!". Yeah, sure. The point is to determine if the risk-reward looks good. When you have 70% EBITDA margins and are capital light, just the fact that those kind of returns haven't been competed away is a pretty good indication that you have a serious moat. If you didn't, where are all the entrants attracted by those economics? Even American Express, which has been there from the start, hasn't been able to make much of a dent and do as well. MA and Visa got in the position where they are because they started out as coops, kind of like VRSK, and that put them in unique positions.

I'll take the other side. I don't think your assumptions are anything close to realistic.

New ETG acquisition: https://www.businesswire.com/news/home/20190603005140/en/ h/t @jerrycap

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain. If V has a 3% FCF yield, then they can buy back 3% of their shares annually, so that gets you 13 % earnings growth/ share, unless they increase margins ( which are already quite high) or lever up ( which at these multiples isn’t all that impactful either. The big issue is how long the current economics persist or to frame it in other terms what the exit multiple will be in 5 or 10 years. I do agree that Robin Hood, Uber and the likes more likely use Visa/ MC‘s infrastructure. I believe the bigger risk is completion from new Entries like Amazon, Apple, FB, Google who know a lot about their customers and surely can create an alternative infrastructure. Alternative rails already exist- Discover can be bought for just $25B and trades for less than 9x earnings. A deep pocketed buyer could get instant scale, then overlay a better tech and then probably be up and running. The combined Market cap of MA and V is $600B, so it certainly is an attractive market. Feel free to short it if you think it's priced for perfection and it's that easy for someone to get their own rails. Personally, I wouldn't be surprised if they kept growing earnings per share at 15%+ for a while. Visa Europe is under-earning and it'll take many years to bring it to the level of the rest of the company, and there's still a lot of cash being used for transactions around the world that is going digital over time, and recently Visa has made moves to get a lot of ACH/direct-deposit-type transactions over its rails (faster, safer, cheaper), so that's a few more trillions in potential transactions to add to the mix. Add to that B2B growing fast, where trillions are being moved between companies still with paper cheques, and that's starting to switch over to digital.

Zero chance of that happening. Maybe some of the issuing banks get pressured, but the underlying rails won't be touched by that.

What's your math here? Organic growth alone isn't enough to know if 30x is expensive. If you get 10% growth at ridiculously high ROIC and incremental margins, don't need capital so you buy back shares with FCF, the leverage going down from the top line to the bottom line can easily mean that per share value increases 15-20%, and if the terminal value is high, 30x can easily be a bargain.

Business relations are based on mutual trust. This will linger for a long time, regardless of what papers are signed.

In order for V and MC to work out, you need to assume that no new rails are going to be build in the foreseeable future. Any new rail in payments is probably going to force lower pricing, so even a smallish market share may impair their value quite a bit. With the ascend of tech titans like FB, Google, Apple who own the customer relationship and can have instant scale, this scenario has become quite more likely, imo. It hasn’t happened yet, because existing rails work quite well and it’s cheap enough that competitions don’t bother, or had easier target markets to go after. However, I think the tech is not a hurdle any more. One addition vector of attack could bento purchase an existing rail like Discover. Discover also works in China. Work quite well Everybody seems to think that doing what V and MA is doing is easy, eh? I'm sure that Apple and Facebook really need to deal with fraud on billions of transactions and deal tens of millions of point-of-sales, at reliabilities that are incredibly high, and losing money for years since before you reach scale you can't make money at 15bps (or less). And even if they charged 5 bps, would anyone notice and switch because of that? That's why Apple Pay runs on visa rails and the Apple Card runs on Mastercard rails. Because they want to focus on where they can add value -- the user experience -- rather than on overbuilding already existing massively complex infrastructure that would take years and years and years to get anywhere. I'm sure some will try to move some things over to their own rails and such, there's always competition, but the stock isn't priced at 200x, it's 30x for a business growing organically at 15-20% and needs basically no capital to grow at close to 100% incremental margins. Not that demanding. I know a lot of lesser businesses that are a lot more expensive.

Musk interview on a Tesla podcast: https://overcast.fm/+E_0MLKmLw

How is it priced for perfection? When the market is selling for close to 20x, a company of much higher quality (ROIC, ROE, margins, moat, runway) than the index selling for around 30x isn't that expensive. China kept Visa and MA out, so that left space for TCEHY and BABA to create their own rails. The rest of the world already has Visa and MA rails, they're reliable, ubiquitous, and cost 15bps (most of the costs are from the issuer banks, and if some fees are reduced, that's likely where, since you could cut the processor fees in half and it wouldn't even be noticed by consumers). Cash is more expensive than that, when you take into account security costs. Very hard to compete with, which is why almost all new payment tech of the past few years has been built on top of it.

Why is revenue the right metric here, especially for a company with close to 70% EBITDA margins? Around 3-3.5% FCF yield on a business of this quality growing double digits with a pretty big runway (cash is still a huge portion of transactions around the world) and new opportunities thanks to technology (lots of new entrants building on top of Visa and MA rails, like Square and Apple Pay and Paypal/Venmo and such). Not to mention that Visa Europe is still under-earning.

Volaris acquisition : https://www.volarisgroup.com/news/article/volaris-group-acquires-Advantage-360 H/t @pearnick

I posted some highlights from the most recent call in this thread, if anyone's interested: Some about the company culture, about their long-term thinking, capital allocation, etc.

https://www.hbo.com/movies/deadwood Probably my favorite TV series of all time. Now a movie on HBO. Hopefully some of the magic's still there and it's good. Trying to keep low expectations...