Visa is one of my largest positions. Iāve owned it for close to seven years, so I came into this one bullish. I also promised to be honest about the price, and thatās where most of this session ends up.
We walked through the whole company in Stock Simplifier: how Visa actually makes money, why the moat is so hard to attack, the real threats and the ones I think are overblown, and the valuation question everybody came for.
If you only have a few minutes, jump to the valuation at 18:06 and the reverse DCF at 24:44.
What we covered
- 0:00 Intro
- 0:12 What Visa actually does (itās a toll road, not a credit card)
- 1:52 The numbers at a glance
- 3:01 The business and how excited I am about it
- 4:22 Phase four: a company returning capital
- 5:00 The moat: a two-sided network plus switching costs
- 8:42 Growth and the new offerings
- 10:37 Management and why execution matters more than talk
- 11:58 The risks: government payment rails, stablecoins, and regulators
- 18:06 Valuation: P/E and price to free cash flow
- 19:26 Whatās squeezing free cash flow
- 24:44 Reverse DCF: what $397 requires
- 27:11 Summary and my rating
- 28:17 Q&A: walking through the valuation inputs
- 28:42 Visa or Mastercard?
- 29:54 Is tokenization a threat?
- 32:34 The biggest real threat: government rails, not crypto
- 39:56 Wrap-up and next week
Where I landed
The business is as good as I thought. The price is the problem.
- Roughly 33 times earnings and about 35 times free cash flow, against a five-year free cash flow average near 28.6
- Capital spending went from $970 million in fiscal 2022 to about $1.5 billion in fiscal 2025, mostly data and AI infrastructure
- Bank incentives, legal settlements, and a heavier cost base have pulled free cash flow margins down from where they used to sit
- The reverse DCF says $397 needs revenue to compound at roughly 12 to 13 percent a year, faster than the 10 to 11 percent Visa has been delivering
My rating is a hold. Iām not selling a share, but Iām not adding at this price either.
Your questions
Brandon asked how I set the valuation toggles and whether tokenization is a threat, then made a good point about crypto adoption: his parents can barely handle Apple Pay. Ralph asked whether I prefer Visa or Mastercard. The short answer to that one: I own both, Visa is the bigger position, and I add to Mastercard when the price lets me.
Next week
Iām redoing the Coca-Cola session that lost its sound. Same time, Thursday at 10 a.m. Eastern.
If thereās a company you want me to take apart on a future Live, leave it in the comments.
Disclosure: I own shares of Visa and Mastercard. This is education, not investment advice.