2 Reasons to Be Bullish on Visa in 2023

Price Target: Unlock

Current Price: $228

Target Date: Unlock

Stock: Visa ($V)

The last time we covered Visa, it was hard to know how deep this "recession" would go (if it developed at all).

Our thesis was that Visa would succeed whether or not there was a full-blown recession because their core growth areas were outside of the kind of consumer spending that would get hurt during a downturn. 

Since then, consumer spending in the US has shown to be one of the most resilient forces in the universe.

While growth is slowing down, you simply cannot stop the people in the US from buying services and goods -- inflation be-dammned.

Furthermore, Visa's solid new business lines in international transfers are growing like wildfire, giving our team even more confidence about a positive way forward, no matter how hot inflation gets. 

And for financial services companies like Visa, that's really all the information you need.

But is there enough money coming in from a diverse enough group of revenue sources to ensure growth? The answer is a resounding yes.

So let's keep this one quick and give you a more brisk update on just how bulletproof Visa has made itself going into the meat of 2023. 

Let's get into it 👇  

Consumer Spending Can't Stop:

Remember, if people are spending money, Visa is making money. Period. End of Story.

And our biggest concern for this slowdown through 2022 is that US consumers would run out of money to spend quicker than the Fed could get inflation under control.

That's one of the central paradoxes of inflation in 21st-century capitalism -- consumer spending drives both growth and inflation.

We can stop inflation right now if we collectively just refuse to buy stuff, but that will also cause a catastrophic collapse of the entire economy. 

So, there needs to be a really tight balance when it comes to consumer spending. And it looks like Visa is benefitting from a dead-accurate Fed policy that is slowly getting inflation under control without completely putting the brakes on our economic engine.

Visa managed to grow payments volume to a level that beat guidance, getting to 12% volume growth year over year. 

Things did get a little dicey for Visa, with payments growth declining all through 2021.

The first few weeks of January were the most encouraging though, as that's the payment volume being compared to January 2021 -- a relatively inflation-free environment. 

There is also a strong shift from cash to card as payments companies like Toast and Square completely take over small businesses across America -- which is also driving growth for Visa too.

And with inflation looking like it peaked in June, we don't see why Visa can't keep posting wins like this.

We would need several months of things like oil and gas spiking prices to put us in a more aggressive Fed situation. 

 But, just in case, are there any other levers Visa can pull in the event that the Fed takes things too far and US consumer spending runs out of gas?

Visa Direct is a Huge Win:

The answer is connectivity and B2B products. Visa has built a payment network that honestly makes getting money to and from anywhere on earth far easier than it ever has been. 

Visa Direct is Visa's new payment network that allows consumers and businesses to send money basically anywhere in the world, and also allows for payouts from various businesses.

The fees are less than more traditional services and the service is growing really competently. 

Transactions for Visa Direct are up 39% year-over-year and showing no signs of stopping.

To get a sense of how powerful and how low-penetration Visa Direct is right now, international transactions are now up 20% QoQ while in the same quarter, Visa Direct technology is powering DoorDash driver payouts in Australia. 

This is the future that most fintech startups promised and it's crazy seeing Visa become the operating system for international commerce like this. 

This year, Visa Direct expects to expand into even more localities while also expanding its use cases for B2B partners.

Every single partnership Visa establishes here creates additional flywheel effects that will boost margins for their B2B ambitions worldwide.  

So, even if we see a big pullback in consumer spending, Visa is only going to accelerate its B2B and enterprise ambitions to ensure that transaction and revenue growth can be maintained.

Long story short, it's a really solid position for the company.   

Visa Outlook:

The main thing we love about Visa is that they are large and agile enough to be able to out-maneuver any attempts at disruption.

The big digital disruptions of the 2010s had us set up to expect some big shifts in Fintech now that capital is really starting to flow there.

Instead, Visa has demonstrated its strength and ability to endure -- with B2B and P2P payments skyrocketing while partnerships ensure new cards and new transactions all around.

Visa is quickly establishing itself as a critical operating system for moving money around, no matter how big or complex an organization is.

If consumer spending fails, business spending will prop the stock long term. 

Risk/Reward: Medium / Medium-high

Rating: Overweight

Dividend Yield: 0.79%

Market Cap: $472 Billion