is feeling the heat of payments startups, digital wallets and crypto, and Wall Street is starting to worry.
Mizuho analyst Dan Dolev on Friday downgraded Visa’s stock rating (ticker: V) from a buy rating to a neutral rating and lowered its price target from $ 255 to $ 220, citing threats to business growth.
“We are concerned that the age-old challenges of new competitors are increasingly eating into Visa’s volumes,” Dolev wrote in a note released Friday.
Visa is a top Barron stock picks for 2022, trading at 30 times projected earnings of about $ 7 per share in its current fiscal year. The company is a “heavyweight in the payments industry,” wrote Andrew Bary, processing more than $ 12.5 trillion in transactions annually. Much of Wall Street is pricing the stock to buy with a median price target of $ 271. The shares traded around $ 217 on Friday, down 1.3%.
Yet the threats against Visa and its main rival
(MA) are mushrooming as consumers turn to new payment platforms and digital wallets that could bypass card networks or slow their revenue growth.
Among Dolev’s concerns: The growth engines of people who switch from cash to cards and online payments could be gone by the end of this decade. This cash flow accelerated during the pandemic as online shopping, debits and other forms of card payment resumed. But the trend has now accelerated so much that it won’t help Visa much beyond 2030, potentially affecting 45% of Visa’s historic revenue growth, Dolev estimated.
Visa also faces increased competition for card transaction volume as competing payment platforms gain traction. One of the threats is Plaid, a start-up that is building a payment bridge between banks, consumers and merchants, potentially eliminating Visa as a middleman.
âPlaidâ¦ is a significant mid-term threat to Visa’s debit business,â Dolev wrote. “The concern is that over time, Plaid may offer an alternative to Visa’s debit rails.”
Visa tried to buy Plaid for $ 5.3 billion in early 2020, but backed off after the Justice Department sued to block the transaction on antitrust grounds.
Other threats to Visa include peer-to-peer payments through digital wallets, including stablecoins and cryptocurrencies that can bypass its network; a new real-time payment system called FedNow; and payment services like âbuy not pay laterâ or BNPL, which could also cut card networks.
The confluence of threats could reduce Visa’s revenue growth by 1 to 2 percentage points per year through 2024, Dolev estimated, pushing growth closer to 13% than the 15% now included in the consensus forecast. It cut its revenue forecast for Visa for fiscal 2023 to $ 32.1 billion from $ 32.5 billion.
Visa, of course, does not stand still. The company offers account-to-account payment services, similar to Plaid, said Vasant Prabhu, vice president and chief financial officer of Visa, in an interview with Barron.
âIt’s good for people to come up with alternatives like Plaid,â he said, âbut we are offering similar services and making the throughput more usable. “
BNPL’s installment payments can still work on Visa’s debit rails, he added, generating revenue for the company. “Time will tell if BNPL is a viable way to offer credit and how attractive it will be,” he said. âOur point of view is that this is a net positive for us.
The ability for Visa to convert cash to digital payments is also much larger than in the consumer space, he said, including areas such as paychecks, insurance disbursements and transfers. international money or remittances. âThe amount of cash conversion beyond consumer payments is 10 times greater in other categories,â he said.
Transactions now carried out in cash could also be strengthened by the increased use of âtap-to-payâ debit in the United States. And the company sees income opportunities in cryptos and stablecoins, tokens designed to maintain a fixed value of $ 1.
Visa works with crypto exchanges like Coinbase Global (COIN) to facilitate transactions; account owners can use the crypto as funding for a card payment after the crypto has been sold and automatically converted to cash, for example. Visa is partnering with more than 50 crypto wallet providers and developing ânative digital currencyâ settlement on its card networks.
âWhat we can do is be the bridge between the crypto economy and the fiat economy,â Prabhu said.
Additionally, Visa is working with banks to develop crypto deposit accounts. âA lot of banks understand that their customers would like this, and they realize that they can lose deposits because money is transferred from bank accounts to crypto platforms,â he said. âThere is a lot of interest in figuring out how to do this. “
It won’t happen overnight, as crypto banking regulations fail to meet customer demand.
However, investors may need to be much more convinced that Visa’s new revenue streams will offset the potentially slower growth in its core business. Visa stock was only up 2.6% from a year ago compared to a 23.5% gain for the S&P 500.
Write to Daren Fonda at [email protected]