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Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to pinpoint on a company that is a trailblazer in the global payment industry, Visa (NYSE: V).

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Strengths:

  • Accelerated Revenue Growth: In 2008, Visa reported revenue of $6.3 billion; in 2012 the company announced revenue of $10.4 billion, representing year over year annual growth of 13.35%; this trend is highly anticipated to sustain into the future with projections putting 2017 revenue at $16.7 billion

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  • Dividend: Currently, Visa pays out quarterly dividends of $0.33, which annualized puts the dividend as yielding 0.88%
  • Institutional Vote of Confidence: 67% of shares outstanding are held by institutional investors, representing the confidence some of the largest investors in the world have in the company and its future
  • Massive Margins: At the moment Visa possesses a net profit margin of 20.57%, displaying a company that is profitable and strong
  • Impeccable Business Model: Visa has millions of customers, all of who have a Visa card, and every time one of these customers uses their Visa card to conduct a transaction, Visa receives a small fee, giving the company millions of revenue streams; additionally Visa does not take on any credit risk, so their business is resistant to a deterioration in consumer credit
  • Leader in Industry: According to Nilson Report, based on total transaction volume, Visa holds a global market share of 63%, giving the company a massive lead over even the second company in the industry, MasterCard, with 31% market share
  • No Debt: In 2008, Visa possesses nearly $125 million of debt on their balance sheets, however currently the company possesses not a cent of debt, a major upside to the business

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Weaknesses:

  • Current Pricy Valuation: At the moment Visa carries a price to earnings ratio of 67.91, a price to sales ratio of 9.67, and a price to book ratio of 3.65, representing a company that is slightly overvalued, however the valuation becomes more reasonable in the forward looking price to earnings ratio of 20.80
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  • Massive Operating Expenses: Visa employs 8,500, and there is significant costs related to running a business worth $100.87 billion, however operating expenses have recently been outgrowing gross profits, a troubling sign

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  • Short Term Blip: In 2011, Visa reported net income of $3.65 billion; in 2012 the company announced net income of only $2.14 billion, representing a 41.37% decline, however growth is anticipated to swing back to positive growth in 2013, with net income being projected to reach $4.80 billion

Opportunities:

  • Capturing Market Share: Visa spent $84 million to sponsor the London Olympics, and spends this money and millions more on advertising campaigns in hopes of capturing market share from their competitors
  • Dividend Growth: Since implementing their dividend program in 2008, Visa has consistently raised their dividend payouts, and further growth is highly anticipated to occur in the future

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  • Mobile Payment Applications: The established world is rarely utilizing cash for financial transactions, however the mobile payment application trend may be the payment method of the future, and Visa is on a short list of companies that will benefit from this distinctive trend
  • Emerging Market Growth: From 2011 to 2012, Visa’s rest of the world category which excludes the United States and Europe, grew 16%, fueled mostly by emerging markets such as China and Latin America; there is also major opportunities in established countries such as Russia, which still uses cash 80% of the time as a payment method

Threats:

  • Competition: As in any industry there is fierce competition facing Visa, which can lead to margin compression as both companies strive to offer the best product at the lowest price
  • Stagnant Economic Landscape: When the global economic landscape is filled with stagnation and uncertainty as it currently is, people are more hesitant to complete financial transactions, hurting Visa’s business
  • Strict Economic Policies: Strict economic policies could restrict Visa and the company’s expansion plans, hurting their revenue growth

Competition:

Major publically traded competitors of Visa include MasterCard (NYSE: MA), Discover (NYSE: DFS), American Express (NYSE: AXP), and Capital One (NYSE: COF). All of these companies offer payment methods similar if not identical to Visa’s products and services. MasterCard is valued at $61.46 billion, and pays out a dividend yielding 0.24%. Discover is valued at $19.17 billion, and pays out a dividend yielding 1.45%. American Express is valued at $64.51 billion and pays out a dividend yielding 1.39%. Finally, Capital One is valued at $34.26 billion and pays out a dividend yielding 0.34%.

The Foolish Bottom Line:

Visa is a global leader in the financial transactions industry, possesses accelerated revenue growth and a future packed to the brim with innovative technologies. However, Visa has rallied nearly 50% in 2012 and possesses a pricy valuation. All in all, Visa is a trailblazer in the financial transaction industry today, and will continue to be this well into the future, making it a great addition to any long-term portfolio.    


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services recommend American Express Company and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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