Over the past 10 years, Visa's (NYSE: V) stock rallied nearly 380% as the S&P 500 rose less than 190%. The payment-processing leader impressed investors with its consistent growth, wide moat, and resilience during economic downturns.
But can Visa's stock head even higher over the next decade? Below I'll review the company's growth rates, challenges, and valuations to decide.
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How fast did Visa grow over the past 10 years?
Visa is often associated with credit and debit cards but doesn't issue any cards or handle any of those accounts. It only partners with banks and other financial institutions to issue Visa-branded cards, and their partners handle those accounts.
The company is only responsible for routing those payments through its global card processing network and charges a swipe fee of roughly 1.5%-3.5% per transaction. It splits those fees with its card issuers and keeps the rest as revenue. This lightweight model, which Mastercard (NYSE: MA) also uses, lets Visa expand quickly with less credit risk.
Visa and Mastercard hold a near-duopoly in card-payment networks, so most businesses are willing to pay those swipe fees to reach more customers. The two market leaders probably won't be disrupted by the growing digital payments industry, since most digital wallets still need to be linked to an active credit or debit card.
From fiscal 2014 to fiscal 2024 (which ended on Sept. 30), Visa's revenue grew at a compound annual growth rate (CAGR) of 11%, as its earnings per share (EPS) rose at a CAGR of 16%. That steady growth -- which it achieved even as the global economy was rattled by the COVID-19 pandemic, geopolitical conflicts, soaring inflation, and high interest rates -- indicates that Visa is a great evergreen stock for long-term investors.
What challenges will Visa face over the next 10 years?
Visa still faces some macro, competitive, and regulatory challenges. On the macro front, the company needs to cope with the inflationary headwinds for consumer spending. The Fed's outlook for fewer rate cuts in 2025 indicates that inflation hasn't been tamed yet.
The company doesn't face much direct competition from Mastercard, which holds a smaller share of the card processing market, or American Express, which is both a bank and a card issuer and targets a smaller slice of higher-income customers. But Visa could lose some younger and lower-income consumers to "buy now, pay later" (BNPL) platforms like Affirm, which lets shoppers break up their purchases into smaller installments instead of using credit cards.
Platforms like PayPal and Zelle can also be directly tethered to bank accounts instead of cards, while the Fed even launched its own instant payment system, FedNow, as an alternative to card-processing networks last year. That fragmentation could erode Visa's defenses and gradually lure away some of its businesses and consumers.
As for the regulatory challenges, Visa and Mastercard have both faced constant pressure to reduce their swipe fees over the past two decades. The two companies finally agreed to reduce their fees (by at least four basis points over the next three years) in a preliminary deal with several merchant groups this March, but a U.S. judge rejected the settlement in June amid complaints that it didn't sufficiently cap their pricing power. That pressure could eventually throttle Visa's long-term growth potential.
Where will Visa's stock be in 10 years?
Investors should keep an eye on these headwinds, but Visa should remain synonymous with card-based payments for the foreseeable future. The secular growth of that market should drive its stock even higher over the next decade.
From fiscal 2024 to fiscal 2027, analysts expect Visa's revenue and EPS to rise at a CAGR of 10% and 13%, respectively. From 2023 to 2032, the global credit card payments market could grow at a CAGR of 8.8%, according to Allied Market Research. Therefore, investors can conservatively expect Visa -- which already bought back more than a fifth of its shares over the past decade -- to grow its EPS at a CAGR of 10% from 2024 to 2035.
Assuming Visa achieves that stable growth trajectory and still trades at 28 times forward earnings by the final year, its stock could rally 145% to roughly $784 per share over the next decade. That would be less impressive than its gains from the past 10 years but would still make Visa a solid stock to buy, hold, and forget.
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American Express is an advertising partner of Motley Fool Money. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, PayPal, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, long January 2027 $42.50 calls on PayPal, short December 2024 $70 calls on PayPal, and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
