Check out this article about Visa's IPO.
Visa's IPO Is Worth a Close Reading
By HERB GREENBERG
March 22, 2008; Page A11
Now that Visa is off to a rousing start, we can't let the largest-ever IPO in the U.S. entirely off the hook.
Not that this toll road of money isn't a good business. It is -- as is the business of its cross-country rival, MasterCard, whose initial public offering of fewer than two years ago became one of legend with its rise of more than 400%. "One is a Ferrari and the other is a Lamborghini," is the way one investor, who enthusiastically owns both, put it to me the other day.
[Visa]
But that doesn't mean things can't go wrong. And like all companies that offer shares to the public, Visa has had to shine a very bright spotlight on more than a few of the risks.
Investors generally overlook "risk factors," as they are called. These can be found in all IPO prospectuses and 10-K annual reports filed with the Securities and Exchange Commission. This is where the company is supposed to bend over backwards to tell you where the booby traps might be.
Much of it is boilerplate, but Visa's warnings go beyond mere boilerplate to some specific issues that could very well spook investors if and when they ever make it into the headlines.
Consider, for example, that the first eight pages of its risk factors are devoted to legal and regulatory matters. Most companies usually start with business risks, but with Visa -- and MasterCard -- the lawyers (and some politicians) have had a field day.
Perhaps the stickiest concern has to do with lawsuits, as Visa puts it, over the amount of money the credit-card companies charge merchants.
This has been a long-running feud. In preparation for an eventual settlement, Visa has put aside $3 billion of the $17.3 billion raised in the IPO to pay any possible claims. But (boilerplate alert!) the company acknowledges even that mightn't be enough.
But legal risks are only part of the story. When Visa states that its "operating results may suffer because of intense competition in the global payments industry," it isn't kidding. There are the usual competitors, but "the Achilles' heel," says David Robertson, publisher of the Nilson Report, a newsletter that tracks the credit-card industry, is that roughly half its revenue comes from the U.S.
By contrast, in Europe, where there are tremendous transaction volumes, revenue is from licenses rather than the settling of transactions, which is the bread-and-butter of Visa. "So the greatest volume comes from the most mature market," Mr. Robertson says. "The question is how quickly they can develop commensurate values in developing markets."
There also is the disclosure that Visa's five largest customers, including J.P. Morgan Chase and Bank of America, account for more than 20% of revenue. Losing one or more, it says, "could have a material adverse impact on our business."
As boilerplate as that may sound, it isn't something to gloss over. In 1999, Citigroup defected to MasterCard. And Mr. Robertson says he believes "it's within the realm of possibility" that one or more of Visa's large customers -- or MasterCard's, for that matter -- could go one step further and strike up direct deals with the country's largest retailers, bypassing Visa altogether.
Don't forget what Visa's business is: It gets a fee for moving money to the retailer's bank from the bank that issued your credit card. "Why do they need an intermediary?" Mr. Robertson asks. "Everybody knows it's possible," though he quickly adds that it probably isn't imminent.
Finally, payment volume and transactions, which Visa says "are key drivers of our business," went the wrong way in the last fiscal year. Visa officials declined to comment, saying they are in the "quiet period" following the IPO.
But according to the IPO prospectus, the growth rate of transaction volume at Visa USA slipped to 10.8% in the fiscal year ended in June 2007, from 17% in 2006. The growth rate of payment volume, meanwhile, slid to 9.6% last year, from 17% the prior year. Part of that, Mr. Robertson says, is a plateau of debit-card growth in the U.S. But the company also discloses that it expects the rest of this year to be hurt by the slowing economy.
Even a Ferrari or Lamborghini can't go faster than the traffic.
Herb Greenberg, MarketWatch senior columnist, doesn't
own stocks except his employer's -- nor sell individual stocks short or invest in hedge funds. MarketWatch is a unit.
Herb Greenberg
Visa's IPO Is Worth a Close Reading
By HERB GREENBERG
March 22, 2008; Page A11
Now that Visa is off to a rousing start, we can't let the largest-ever IPO in the U.S. entirely off the hook.
Not that this toll road of money isn't a good business. It is -- as is the business of its cross-country rival, MasterCard, whose initial public offering of fewer than two years ago became one of legend with its rise of more than 400%. "One is a Ferrari and the other is a Lamborghini," is the way one investor, who enthusiastically owns both, put it to me the other day.
[Visa]
But that doesn't mean things can't go wrong. And like all companies that offer shares to the public, Visa has had to shine a very bright spotlight on more than a few of the risks.
Investors generally overlook "risk factors," as they are called. These can be found in all IPO prospectuses and 10-K annual reports filed with the Securities and Exchange Commission. This is where the company is supposed to bend over backwards to tell you where the booby traps might be.
Much of it is boilerplate, but Visa's warnings go beyond mere boilerplate to some specific issues that could very well spook investors if and when they ever make it into the headlines.
Consider, for example, that the first eight pages of its risk factors are devoted to legal and regulatory matters. Most companies usually start with business risks, but with Visa -- and MasterCard -- the lawyers (and some politicians) have had a field day.
Perhaps the stickiest concern has to do with lawsuits, as Visa puts it, over the amount of money the credit-card companies charge merchants.
This has been a long-running feud. In preparation for an eventual settlement, Visa has put aside $3 billion of the $17.3 billion raised in the IPO to pay any possible claims. But (boilerplate alert!) the company acknowledges even that mightn't be enough.
But legal risks are only part of the story. When Visa states that its "operating results may suffer because of intense competition in the global payments industry," it isn't kidding. There are the usual competitors, but "the Achilles' heel," says David Robertson, publisher of the Nilson Report, a newsletter that tracks the credit-card industry, is that roughly half its revenue comes from the U.S.
By contrast, in Europe, where there are tremendous transaction volumes, revenue is from licenses rather than the settling of transactions, which is the bread-and-butter of Visa. "So the greatest volume comes from the most mature market," Mr. Robertson says. "The question is how quickly they can develop commensurate values in developing markets."
There also is the disclosure that Visa's five largest customers, including J.P. Morgan Chase and Bank of America, account for more than 20% of revenue. Losing one or more, it says, "could have a material adverse impact on our business."
As boilerplate as that may sound, it isn't something to gloss over. In 1999, Citigroup defected to MasterCard. And Mr. Robertson says he believes "it's within the realm of possibility" that one or more of Visa's large customers -- or MasterCard's, for that matter -- could go one step further and strike up direct deals with the country's largest retailers, bypassing Visa altogether.
Don't forget what Visa's business is: It gets a fee for moving money to the retailer's bank from the bank that issued your credit card. "Why do they need an intermediary?" Mr. Robertson asks. "Everybody knows it's possible," though he quickly adds that it probably isn't imminent.
Finally, payment volume and transactions, which Visa says "are key drivers of our business," went the wrong way in the last fiscal year. Visa officials declined to comment, saying they are in the "quiet period" following the IPO.
But according to the IPO prospectus, the growth rate of transaction volume at Visa USA slipped to 10.8% in the fiscal year ended in June 2007, from 17% in 2006. The growth rate of payment volume, meanwhile, slid to 9.6% last year, from 17% the prior year. Part of that, Mr. Robertson says, is a plateau of debit-card growth in the U.S. But the company also discloses that it expects the rest of this year to be hurt by the slowing economy.
Even a Ferrari or Lamborghini can't go faster than the traffic.
Herb Greenberg, MarketWatch senior columnist, doesn't
own stocks except his employer's -- nor sell individual stocks short or invest in hedge funds. MarketWatch is a unit.
Herb Greenberg
