Visa, It’s Everywhere You Want to Be

Today, Visa revealed terms for an impending IPO, first announced last November in a registration statement filed with the SEC. Visa is the largest credit card company in the US and operates the world’s largest retail electronic payments network.

Visa’s IPO Terms

Visa plans to offer 406 million shares for $37-$42, and will trade on the New York Stock Exchange under the symbol “V” [1]. While an official IPO date has not been announced, IPO researchers expect trading to begin on March 20.

The IPO Market

The number of US IPOs priced this year has declined 49% from the number priced at this time a year ago [2], a possible sign that companies expect capital is no longer as freeflowing as before.

Last year’s largest deals were issued by financial firms including Blackstone Group (BX), Interactive Brokers (IBKR), and Och-Ziff (OZM) Capital Management. Demand was strong at first, but after the initial IPO “pop”, the majority of the financial companies ended up with negative returns by the end of the year.

MasterCard (MA) had its IPO back in May 2006, and has had a 400% return since then. MasterCard had a nearly 100% return in the past year. It has consistently beat earnings estimates since IPO and is expected to continue outperforming the business services industry. This has been possible in the terrible credit market because MasterCard provides credit card services and is not an actual credit lender.

Visa, the company

Visa, like MasterCard, derives its revenue from providing processing services to merchants and banks. By using bank issues, Visa does not profit from the interest paid by cardholders, but this also isolates it from debt defaults. Thus, the revenues of card service providers depend largely on consumer spending.

Visa did indeed see a 33% rise in revenue in 2007, although it recorded a loss due to litigation settlements with American Express and Discover.

Life Takes Visa

It seems inopportune for Visa to be offering an IPO at a time when consumer credit is rapidly crunching. What’s the hurry?

It’s likely that the banks invested in Visa are looking for a big pile of cash to help ease the credit crisis. If Visa does indeed raise the $17 billion it is hoping for, this would be good news for underwriters JPMorgan Chase (JPM) and Goldman Sachs (GS). Citigroup (C) and Bank of America (BAC) are also shareholders.

Visa may also be pushing for an IPO to cover litigation costs after a number of recent lawsuits.

I expect that Visa will underestimate their initial pricing to gain investors’ confidence given uncertain times. And, even though consumers will be cutting back on unnecessary spending, they will probably increase their use of credit cards for the essentials. Visa is also the official sponsor of the 2008 Olympic Games. Paired with this visibility, Visa may be in for a good run-up.

1. Visa SEC filing
2. Renaissance Capital IPO Research

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One Response to Visa, It’s Everywhere You Want to Be

  1. haystackfarmer says:

    If the IPO shares sell from that $37-$42 range, keep in mind of the financial players to profit most from it:

    JP Morgan: owns approximately 23% of Visa class B stock
    Bank of America: owns approximately 11% of Visa class B stock

    Citigroup, US Bankcorp, and Wells Fargo have smaller holdings in Visa

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