$V Bear/Bull Cases
$V continues to execute and the company grew 22% YoY. Visa is "only" down 9.78% YTD compared to the market's 22%ish.

But something I like to do is look at the bear and bull case for companies, or to use a Mungerism, invert, always invert.

Below are some bull bear cases for $V.

Bull cases for Visa:

  1. One of the longest-lasting 2-sided network effects in the world is Visa. To enter the market, new payment networks would have to persuade both consumers and merchants to use their platform, making it very difficult to challenge Visa's dominant position.
  2. Visa doesn't make loans, thus it doesn't assume any credit risk. Assessment Fees, which Visa collects from credit and debit card transactions, are a source of revenue. The enterprise is a global tax on cashless transactions.
  3. It is no secret that the global shift to digital payments is disrupting the use of cash. In addition to the portion of digital spending that is done online, credit card networks are seeing an increase in usage. The long-term decline in the use of cash is very advantageous to Visa. As the shift toward cashless transactions continues globally, there is still a long runway.
  4. In exchange for extraordinarily large margins, Visa supplies the technology to allow transactions through their network. The average free cash flow margin for Visa is 45%. These unit economics are beyond the reach of the majority of businesses.

Bear Cases for Visa:

  1. Of all companies in the world, $V has one of the strongest brands and moats. However, the concept of decentralized finance (or "DeFi"), which has gained popularity in part due to the emergence of crypto, poses one of the biggest hazards to the Visa. DeFi transactions would take place via a decentralized system, effectively eliminating companies like Visa from the picture. Decentralized protocols may also be used by developing nations with high cash usage to expand their payment infrastructure in place of Visa or MasterCard.
  2. The consumer and business spending markets can be volatile for Visa. Economic downturns, business closures, a decline in cross-border travel, and any other occurrences that can hurt a region's overall spending propensity will impede Visa's expansion.
  3. Even though Visa does not profit from interchange fees, it still establishes them in accordance with regional authorities. Visa has been pressured to decrease interchange rates by a number of countries and business associations. Lower interchange rates might make local issuers less inclined to advertise goods bearing the Visa brand, which would be detrimental to Visa's business.
  4. A competitive risk from fintechs, governments, and other techc ould impact $V's pricing or competitive strategy. Smaller players are free to develop payment solutions that banks can adopt and introduce to the public thanks to protective regulation like the PSD2 in Europe. These rules may divert payment transactions from the Visa network or create a highly competitive environment where Visa may be able to compete in a way that supports its expansion and financial success.
  5. $V s a significant participant in a duopoly. The business confronts antitrust risks that could prevent wise strategic partnerships or acquisitions that regions or governments view as predatory. They might also obstruct internal measures that would increase their market share.

That's a wrap, thanks for reading today's short post on the bull and bear case for Visa. I hope this helps give you an idea of how to approach investing in different businesses.
Christian's avatar
Great job as always Dave. Loved the bull cases and definitely can acknowledge the bear ones. Besides the first bear case-don’t have to worry about that at all
Ben's avatar
@christian7621 yep. Doesn’t appear crypto is disrupting $V and $MA anytime soon. But I’ll be on the look out for when even 5% of regular people use crypto on daily purchases
Christian's avatar
@rpinvestments I don’t wanna hear about crypto ever again. Not after what has happened. I’ve always said crypto is the stupidest thing ever. I truly don’t understand why people invest in it. I’m not worried at all. I’ve turned into a big visa fan thanks to @ifb_podcast he’s been a great help. One of my best followers, so glad I get to interact with him. When I finish law school drinks on me
Dave Ahern's avatar
@christian7621 thanks Christian, enjoy our chats too 😄😄.
Conor Mac's avatar
Do you think the bull/bear cases for $MA would be much different?
Dave Ahern's avatar
@investmenttalk great question and a good research/writing project. I’ll see what I can do.
Joshua Simka's avatar
Any thoughts on their Creator Commerce Program, which (I think) they announced last month? Seems like an interesting competitive play in the social commerce space.


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Rihard Jarc's avatar
I remember they couldn't buy Plaid because of antitrust. But that would be a really good strategic asset. Given the state of their industry and need for change I find the ability not to be able to do any strategic M&A as a big disadvantage at this point.
Dave Ahern's avatar
@rihardjarc great insight; thanks for sharing. And a great point that I didn't consider.
Rihard Jarc's avatar
@ifb_podcast But to be fair I don't think any Big Tech can do a deal either. Just feels like they are big enough to enter new industries by themselves with their cash pile, not sure I would put $V in there.

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