V - Visa

[Liberty]

Did you paste the wrong link, atbed?

 

Edit: Guessing this is the story: https://www.theglobeandmail.com/report-on-business/us-bank-card-companies-to-seek-licenses-to-operate-in-china-in-months/article35748975/

[giofranchi]

I've sold TVR and bought V.

Just wanted to decrease my portfolio's exposure to the insurance sector.

For what I can see V will benefit from secular tailwinds at least for the next few years. The exact opposite is true for insurance as interest rates slowly rise.

And V in the payment industry seems to be the lead dog.

 

Longer term Munger of course is right, and technology developments make it very difficult to know who will win in the payment industry.

 

Cheers,

 

Gio

[Liberty]

Post on V and MA (sub required):

 

https://www.scuttleblurb.com/visa-v-mastercard-ma-expanding-the-rails/

[Liberty]

Visa Q3:

 

http://s1.q4cdn.com/050606653/files/doc_financials/2017/Q4/Visa-Inc.-Q4-and-FY-2017-Financial-Results.pdf

 

Fiscal Fourth Quarter:

• GAAP net income of $2.1 billion or $0.90 per share

• Net operating revenues of $4.9 billion, an increase of 14%, driven by continued growth in payments volume, cross- border volume and processed transactions

• Payments volume growth, on a constant dollar basis and excluding Europe co-badge volume, was 10% over the prior year

• Cross-border volume growth, on a constant dollar basis, was 10% over the prior year

• Total Visa processed transactions increased 13% over the prior year

• Returned approximately $2.1 billion of capital to shareholders in the form of share repurchases and dividends

Fiscal Full Year:

• GAAP 2017 net income of $6.7 billion or $2.80 per share and adjusted full-year net income of $8.3 billion or $3.48 per share

• 2017 net operating revenues of $18.4 billion, an increase of 22%, driven by inclusion of Visa Europe and continued growth in payments volume, cross-border volume and processed transactions

• Payments volume growth, on a constant dollar basis and excluding Europe co-badge volume, was 30% over the prior year, or 11% inclusive of Visa Europe in prior year's results

• Cross-border volume growth, on a constant dollar basis, was 80% or 11% inclusive of Visa Europe in prior year's results

• Total Visa processed transactions increased 34% over the prior year, or 13% inclusive of Visa Europe in prior year's results

• Returned approximately $8.5 billion of capital to shareholders in the form of share repurchases and dividends

[Jerry Capital]

Love this

 

Visa as an inflation hedge

 

"If you look at the last five years, I think our payment volume grew roughly 10% and global – there are two drivers of it. One is growth of global nominal GDP. The keyword is nominal because consumer expenditures typically move with nominal GDP and the other was penetration of cash. If you get double-digit growth when you went through probably one of the weakest periods of global nominal GDP growth because not only did we have weak rail growth, but we had almost no inflation. You can imagine how we were growing 10% with actually one engine, which is nominal GDP, not functioning. And the only rail engine that was functioning was penetration of cash."

 

Weak competitor called cash

 

"If anything, if you think the future is somewhat better growth, that should help. And I don't see any sign of slowdown in the ability to digitize cash. I think the best sort of description an analyst had coming out of our Investor Day was something like I like Visa because they have weak competitor called cash. I mean, the wonderful thing about this is that governments now have embraced the idea that cash needs to go because it creates corruption, it creates inefficiency. It just doesn't fit their own views of what the future of their countries are. That's a new phenomenon."

 

https://seekingalpha.com/article/4124989-visas-v-management-presents-ubs-global-technology-conference-transcript?part=single

[Liberty]

Q4: https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q1/Visa-Inc.-Q1-2018-Financial-Results.pdf

 

https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q1/Visa-Inc.-Q1-2018-Financial-Results-Conference-Call-Presentation.pdf

 

EPS +25%

[Liberty]

Q1:

 

https://s1.q4cdn.com/050606653/files/doc_financials/2018/Q2/Visa-Inc.-Q2-2018-Financial-Results.pdf

[Liberty]

https://www.bloomberg.com/news/articles/2018-08-09/visa-mastercard-amex-agree-to-trim-interchange-fees-in-canada

[Liberty]

Write-up on Visa and MasterCard (subscription required):

 

https://www.scuttleblurb.com/v_ma2/

[Pauly]

Write-up on Visa and MasterCard (subscription required):

 

https://www.scuttleblurb.com/v_ma2/

 

Is there anything useful there, Liberty? On the Visa write-up and the site in general?

[Liberty]

Write-up on Visa and MasterCard (subscription required):

 

https://www.scuttleblurb.com/v_ma2/

 

Is there anything useful there, Liberty? On the Visa write-up and the site in general?

 

The writing is very good and very in-depth, and the author is very good at succinctly explaining very complex industry dynamics, so I quite like it. There are many sample posts available freely on the site if you want to get an idea:

 

https://www.scuttleblurb.com/category/sampleposts/

 

f.ex:

 

https://www.scuttleblurb.com/vrsk/

 

https://www.scuttleblurb.com/mco/

 

https://www.scuttleblurb.com/inxn-eqix/

 

https://www.scuttleblurb.com/cprt_kar/

[chrispy]

Thanks for the share. Very informative.

 

I sold V and MA several months ago for a different idea that obviously has performed worse... I couldn't handle the near 40PE with low single digits growth. The network effects are amazing with V and MA but do you guys/gals think that the price has appreciated past the value of the current earnings?

[Liberty]

Thanks for the share. Very informative.

 

I sold V and MA several months ago for a different idea that obviously has performed worse... I couldn't handle the near 40PE with low single digits growth. The network effects are amazing with V and MA but do you guys/gals think that the price has appreciated past the value of the current earnings?

 

On V, Visa Europe is still underearning...

[Liberty]

https://www.bloomberg.com/news/articles/2018-09-18/visa-mastercard-reach-6-2-billion-settlement-over-swipe-fees

 

 

Visa Inc. and Mastercard Inc. agreed to pay as much as $6.2 billion to end a long-running price-fixing case brought by merchants over card fees, the largest-ever class action settlement of an antitrust case.

[gary17]

Thanks -

 

for those following V and MA closely, i was looking at their cash flow statements recently and noticed that V has a large non-cash current item called "Client incentives" which is a big negative item under the change in working capital item.  I don't see the same thing for MA.  Can someone help me understand why this is, or perhaps it is there for MA as well , but I missed it?

 

THanks

[Guest Schwab711]

Thanks -

 

for those following V and MA closely, i was looking at their cash flow statements recently and noticed that V has a large non-cash current item called "Client incentives" which is a big negative item under the change in working capital item.  I don't see the same thing for MA.  Can someone help me understand why this is, or perhaps it is there for MA as well , but I missed it?

 

THanks

 

From Visa's 10-k:

Client incentives consist of long-term contracts with financial institution clients, merchants and strategic partners for various programs designed to build payments volume, increase Visa product acceptance, win merchant routing transactions over our network and drive innovation. These incentives are primarily accounted for as reductions to operating revenues.

 

Mastercard calls them rebates (like Visa used to). V just breaks out the detail of the accrual vs cash for incentives in the CFS whereas MA doesn't.

[gary17]

I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 

i'm noticing alipay & wechat pay more and more now, even in vancouver. 

Gary

[vinod1]

I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 

i'm noticing alipay & wechat pay more and more now, even in vancouver. 

Gary

 

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

 

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

 

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

 

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

 

Right now, I do not see a threat on the immediate horizon.

 

Vinod

[Saluki]

I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 

i'm noticing alipay & wechat pay more and more now, even in vancouver. 

Gary

 

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

 

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

 

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

 

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

 

Right now, I do not see a threat on the immediate horizon.

 

Vinod

 

I have been seeing bus and billboard ads in the past month for a mastercard that is linked to your Venmo account.  Swipe like a credit card at any merchant who takes V or MC but it's linked to your bank account through venmo.  I won't say it's a game changer, but the landscape on these payment systems changes like the sand dunes and it's hard to predict with certainty what it will look like in a few years.

[vinod1]

I was wondering if people who follow visa or MA think alternative payments like Alipay is a significant threat ?  it seems like with Alipay you simply connect your bank account to  it to make payments, bypassing the credit card networks all together... 

i'm noticing alipay & wechat pay more and more now, even in vancouver. 

Gary

 

Yes it is a threat long term that needs to be watched, just like you do for any long term risks for any company, even Berkshire.

 

That said, the only new company that has succeeded in the past 40 years in payments (payment rails, not something that rides on top of the existing networks like Square) in the US and the rest of the Developed world is Paypal. That is because it solved a particular pain point in online payments.

 

For consumers in US or in any of the major developed economies, payment networks are well developed and paying using credit cards is not a pain point. Paying using a smartphone is not anymore convenient than paying with a credit card.

 

That is why Apple pay is such a flop. Who knows how things turn out in future? But, just like you noticed, we would have some indication of any change in competitive dynamics and it would not be overnight.

 

Right now, I do not see a threat on the immediate horizon.

 

Vinod

 

I have been seeing bus and billboard ads in the past month for a mastercard that is linked to your Venmo account.  Swipe like a credit card at any merchant who takes V or MC but it's linked to your bank account through venmo.  I won't say it's a game changer, but the landscape on these payment systems changes like the sand dunes and it's hard to predict with certainty what it will look like in a few years.

 

One new company in the payments systems that succeeded in the last 40 years, must be really slow moving sand dunes :)

 

Vinod

[gary17]

I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.  what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

 

facebook could be like wepay but they have some 'trust' issue at the moment

 

Gary

[SlowAppreciation]

I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.  what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

 

facebook could be like wepay but they have some 'trust' issue at the moment

 

Gary

 

• Building relationships—one by one—with 14,000 financial institutions in 150+ countries.
  
• Building relationships with regulators/govts in each of those countries.
  
• Compliance
  
• Building technology/infrastructure with 99.99999% uptime and then integrate that with each of the financial institutions
  
• establishing rules that all parties involved in transactions can agree to for things like returns, disputed transactions, etc
  
• have better fraud detection than the company that's been doing it for 40 years
  

[gary17]

I think Apple Pay could have potential to be the next Wepay or Ali pay in the US as people seems to have more 'trust' towards Apple...  a lot of payments via app (for example hailing a Uber) can be apple pay.  what's stopping apple pay from linking directly to someone's debit card and bypass the visa network altogether ?

 

facebook could be like wepay but they have some 'trust' issue at the moment

 

Gary

 

• Building relationships—one by one—with 14,000 financial institutions in 150+ countries.
  
• Building relationships with regulators/govts in each of those countries.
  
• Compliance
  
• Building technology/infrastructure with 99.99999% uptime and then integrate that with each of the financial institutions
  
• establishing rules that all parties involved in transactions can agree to for things like returns, disputed transactions, etc
  
• have better fraud detection than the company that's been doing it for 40 years
  

 

I don't dispute the above and agree V and MA have tremendous value- but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?

Gary

 

[Liberty]

but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?

Gary

 

Because China basically started from nothing and was fairly hostile to foreign companies in this industry, while the rest of the world already has existing payment rails that work well.

[Pauly]

but with all these 'facts' why is it that Alipay and Wepay have taken off... they don't have the relationships, the compliance and fraud protection issues to deal with?

Gary

 

Because China basically started from nothing and was fairly hostile to foreign companies in this industry, while the rest of the world already has existing payment rails that work well.

 

^This x1000. If you've seen Alipay/Wepay in Vancouver I would bet it's only being used by people with strong links to China. I can't see anyone else trusting their financial information to firms like Alibaba and Tencent. What would be the upside?