Visa’s [V] share price has taken a 7.5% hit (through 15 January’s close) as its planned $5.3bn takeover of fintech start-up Plaid was cancelled by the US Department of Justice (DoJ). The DoJ sued Visa on antitrust grounds, although Visa denied that it was trying to eliminate a competitor.
“We are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive,” said Al Kelly, CEO.
Visa accounts for 70% of all US card transactions while Plaid, which connects apps with customer bank accounts, was reportedly developing its own payments service. The prospect of Visa buying up a potential rival was enough for the DoJ to decide to halt the deal. According to the Financial Times, the DoJ referenced an internal Visa document where an executive described Plaid as “a massive opportunity” but also “one that threatens Visa”.
What does this mean for Visa’s share price?
For Visa’s share price, this is a hiccup in a wider strategy that is seeing the firm push further into the fintech sector. It purchased Klarna in 2017 and the Swedish payments company went on to become Europe’s most valuable fintech company that year. In 2019, Visa acquired Californian payment tech company Verifi, London-based Fraedom joined the fold in February 2018 and in December Earthport, which provides cross-border payment services, was purchased for $223.4m.
The Plaid deal would have been bigger — and more valuable to Visa — than all of those deals. When the potential acquisition first came to investor attention last year, Visa said the company could add up to 100 basis points on its net revenue growth by 2021, according to a CNBC report. The DoJ estimated that, if Plaid went to a rival, it would have a potential $300m to $500m downside risk to Visa’s debit business.
Plaid, which has seen a 60% increase in customers during the pandemic, could now go public under its own steam. That’s the view of the five fintech specialists Barron’s talked to, at least, who said Plaid is likely to list via an IPO, direct listing or special purpose acquisition vehicle (SPAC). The company has received several rounds of investment, including $250m from both MasterCard [MA] and Visa in a Series C round in 2018. One banker Barron’s spoke to said it would be hard for investors to “wait too long for an exit given how close they came [to being bought by Visa].”
While Visa’s share price dipped following the DoJ decision, it could be a short-term bruise rather than a knockout blow for the payment services giant.
Where next for Visa’s share price?
According to Jefferies analyst Trevor Williams, now could be the time to buy despite Visa’s share price hit, especially with the prospect of an economic recovery in 2021. Williams upgraded both Visa and rival MasterCard from hold to buy last week. Williams upped his target on Visa from $195 to $250 and said in his analysis:
"With the rollout of the vaccine underway, we have increasing confidence in an eventual international travel recovery, which we believe will drive the stocks in 2021 as a more normalized earnings stream in 2022 and 2023 becomes discounted by the market."
Among the analysts tracking the stock on Yahoo Finance, Visa’s share price has an average $236.09 price target. Hitting this would represent a 17.11% upside on the current share price (through 15 January’s close). The most bullish target on the site is $270 — a 33.9% upside.
Of the 39 analysts offering recommendations, 13 rate Visa a strong buy and 22 a buy.
|PE ratio (TTM)||41.24|
|Quarterly revenue growth (YoY)||-16.90%|
Visa's share price vitals, Yahoo Finance, 19 January 2021