Byte # 51: The Toll Booth That Gets Paid More When the World Spends More
Dear Reader,
Today, I bring to you another compounding machine, namely, Visa (V).
Its key metrics at a glance raise your curiosity:
Gross Margin: 97.8%
Operating Margin: 67.0%
Return on Invested Capital: 54.3%
Free Cash Flow Margin: 67.0%
Interest Coverage: 46x
These numbers point to a business that is built to scale efficiently and compound consistently over time.
The Business: Quietly Powering Global Commerce
Visa is the largest payments network globally, processing nearly $17 trillion in annual volume across 200+ countries.
It doesn’t lend money. It doesn’t take credit risk. Instead, it earns a fee each time money moves through its rails, which is why the business is often described as a toll booth.
As a result, Visa has delivered strong long-term compounding, with a 10-year CAGR of ~10.6% in revenue and ~16.7% in EPS.
The Moat: Why It’s So Hard to Disrupt
Network Effects → More users attract more merchants
Scale Advantage → High margins, low incremental costs
Duopoly Structure → Alongside Mastercard, Visa dominates
Once these rails are built, they’re incredibly hard to replace.
Latest Earnings: Resilience in Action
The latest quarterly results (Q2 ending Mar’26) reinforced the strength of the model:
Revenue: $11.2B (+17% YoY)
EPS: $3.31 (+20% YoY, beat)
Payments Volume: +9% YoY
Cross-border Volume: +21% YoY
Value-Added Services: +27% YoY (~30% of revenue)
The board authorized a $20B multi-year buyback, renewing investor confidence
Despite macro uncertainty, consumer spending remains resilient, and Visa continues to execute.
What’s Holding the Stock Back?
Interestingly, despite strong fundamentals, the stock is down ~6% over the past year.
The key reasons:
A $38B pending legal settlement capping transaction fees for five years
Rising concerns around alternative payment systems
Growth of state-backed payment networks
This creates an important distinction:
The business is executing well-but sentiment is weighed down by regulatory overhang and disruption concerns.
Opportunities: Where Growth Comes From
1) Inflation Tailwind
Visa earns a percentage of transaction value. Higher prices = higher revenue per swipe, even if volumes remain unchanged.
2) FIFA World Cup & Global Events
Global events such as the FIFA World Cup drive:
Cross-border travel
Tourism and entertainment spending
These are among Visa’s highest-margin transaction types, creating meaningful periodic tailwinds.
3) Structural Shift from Cash to Digital
A large portion of global transactions still occur in cash.
Ongoing digital adoption, rising e-commerce penetration, and strong growth in tap-to-pay (now ~78% of face-to-face transactions globally) continue to expand Visa’s addressable market.
4) New Payment Rails (Stablecoins, B2B, etc.)
Visa is actively integrating new technologies rather than resisting them:
Stablecoin-linked cards: 160+ programs globally
Volumes up ~200% YoY in emerging markets
~$7B annualized stablecoin settlement run-rate (up >50% QoQ)
Visa Direct growing at ~25% transaction growth
The strategy is clear: New rails should flow through Visa-not bypass it.
5) Emerging Market Expansion
Strategic growth in Asia, Africa, and Latin America-combined with rising incomes-continues to drive incremental payment volume and long-term upside.
6) Value-Added Services (VAS) Expansion
VAS revenue is growing at ~26–27% YoY, expanding into AI, risk tools, and open banking.
This mix shift improves:
Margins
Revenue quality
Long-term earnings durability
Valuation: A 5-Year View
The long-term setup assumes:
~10% revenue growth
~14% EPS growth (helped by buybacks)
Over the next 5 years, that could imply:
A valuation range of roughly $268 (downside) to $600+ (upside)
Potential 12–15% annualized returns if execution holds
This is a long-term compounding story, supported by multiple durable growth drivers.
Key Risks
Regulatory pressure on fees
Alternative payment rails bypassing networks
Macroeconomic slowdown
Technological disruption
The central question remains: Will the future of payments flow through Visa-or around it?
Final Thought
To own Visa, I think you need to believe card-based and digital network payments will remain central to commerce worldwide while Visa steadily layers on higher-margin services.
It doesn’t need to win every innovation cycle.
It just needs to make sure that no matter how money moves- it still touches its network - whether through cards, digital payments, or the new rails it is helping shape.
And so far, that’s exactly what it continues to do.
As always, thank you for reading. If you find these bytes meaningful, feel free to subscribe and share with others.
Disclaimer: This isn’t a recommendation to buy or sell-it’s about revisiting the process and stress-testing whether the original thesis still holds.
Have a wonderful rest of your day.
Cheers,
Pooja
