I like RBRK here too so it’s purely due to limited capital, can’t buy everything at once unfortunately. The other names are smaller on a cost basis so are ahead in my pecking order.
What do you think are the key concerns that are depressing Visa’s valuation so much? Concerns about stablecoins stealing transaction share from Visa seem like a joke to me and a potential cap on interest rates charged on credit cards in the us now seems to be off the table. What other major risks are now worrying investors?
This does not make a lot of sense because 1) Historically Visa’s sales have been quite resilient to global economic slowdowns (it grew sales 10% in 2009), 2) It would benefit from higher inflation caused by rising oil prices since it gets a % of nominal sales across a very broad range of products and services, 3) Most economists or street analysts do not assume a global recession as a base case right now. Even in the US, Visa’s largest market even sustained $120 oil prices are expected to cause an economic slowdown but are not expected to cause a recession
If recession fear was the main reason for Visa’s underperformance and valuation compression, then why did 90% of the underperformance of Visa versus the S&P500 occur before the start of the Iran war? Recession fears were much lower before the start of the Iran war
Well, you asked for my opinion, so I disagree for three reasons.
1. Consumer spending declines in a recession
A global recession is a negative for Visa. The level of payment penetration Visa had 20 years ago is very different to today, where it is now the dominant payment method. That means growth is now more tied to overall consumer spending than to the shift from cash to card.
2. Cross-border is high margin
Cross-border transactions are a high margin revenue source for Visa. During recessions, international travel often drops sharply, which directly reduces this revenue stream.
3. Credit delinquencies rise
Recessions typically lead to higher credit card defaults. Banks respond by tightening lending standards, which can slow new card issuance and reduce overall transaction volumes.
I made a similar call on EVO a few months ago, I’d love to see them turn it around but I don’t see it happening anytime soon. Good job for being brave enough to cut your losses and admit it.
Probably should have sold a lot earlier. Optimal strategy going forward will be to sell and wait for clear evidence of a turnaround rather than hoping for it to change.
Thanks for the updates. I have been waiting for an opportunity to buy Adyen and this feels a decent opportunity. Glad you concur!
Curious re RBRK not being added to / on the buy watchlist? Is this just driven by position sizing or something else? Thank you!
I like RBRK here too so it’s purely due to limited capital, can’t buy everything at once unfortunately. The other names are smaller on a cost basis so are ahead in my pecking order.
Got it. Appreciate the response.
Adyen & Meli are great here. Been buying both the past three months as well
What do you think are the key concerns that are depressing Visa’s valuation so much? Concerns about stablecoins stealing transaction share from Visa seem like a joke to me and a potential cap on interest rates charged on credit cards in the us now seems to be off the table. What other major risks are now worrying investors?
This does not make a lot of sense because 1) Historically Visa’s sales have been quite resilient to global economic slowdowns (it grew sales 10% in 2009), 2) It would benefit from higher inflation caused by rising oil prices since it gets a % of nominal sales across a very broad range of products and services, 3) Most economists or street analysts do not assume a global recession as a base case right now. Even in the US, Visa’s largest market even sustained $120 oil prices are expected to cause an economic slowdown but are not expected to cause a recession
If recession fear was the main reason for Visa’s underperformance and valuation compression, then why did 90% of the underperformance of Visa versus the S&P500 occur before the start of the Iran war? Recession fears were much lower before the start of the Iran war
Again, you asked for my opinion. I’m not trying to convince you either way. You stated the obvious risks and I added a global recession.
Well, you asked for my opinion, so I disagree for three reasons.
1. Consumer spending declines in a recession
A global recession is a negative for Visa. The level of payment penetration Visa had 20 years ago is very different to today, where it is now the dominant payment method. That means growth is now more tied to overall consumer spending than to the shift from cash to card.
2. Cross-border is high margin
Cross-border transactions are a high margin revenue source for Visa. During recessions, international travel often drops sharply, which directly reduces this revenue stream.
3. Credit delinquencies rise
Recessions typically lead to higher credit card defaults. Banks respond by tightening lending standards, which can slow new card issuance and reduce overall transaction volumes.
A global recession, plain and simple
I made a similar call on EVO a few months ago, I’d love to see them turn it around but I don’t see it happening anytime soon. Good job for being brave enough to cut your losses and admit it.
Probably should have sold a lot earlier. Optimal strategy going forward will be to sell and wait for clear evidence of a turnaround rather than hoping for it to change.
I’ve had the same thoughts too
Thanks for update. We at CL don't believe MELI is much bargain though.
How have you arrived at that conclusion?
DCF model is available on my page
Had a look, my assumptions and valuation is much different