Last Updated: March 19, 2008: 5:28 PM EDT
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Visa's record IPO rings up 28% gain

For investors, the big payoff is likely in the long term

By Katie Benner, writer-reporter

NEW YORK (Fortune) -- Visa, the giant credit card issuer, ended its first day as a publicly traded company at $56.50 a share, 28% above its initial public offering price of $44.

The closing price topped off a triumphant IPO for the biggest brand in credit cards, which priced Tuesday night for a record-breaking $17.9 billion. The company sold 406 million shares for $2 more than its estimated $39-$41 range. It began its first trading day on the New York Stock Exchange at $59.50 and climbed as high as $69 in intraday trading.

"A lot of investors feel good about this particular stock but don't feel good about the markets in general, so exuberance for Visa (V) was curbed by the cold reality of the market at large," says David Robertson, publisher of the Nilson Report, a newsletter and research firm that covers the payments industry. "But if you bought at $44 and you're at $56.50, that's not bad for a day."

A financial system in turmoil, slumping economy and investors shunning stocks in favor of safe havens like Treasuries and gold did not make the current environment a good one to go public. But Visa's strong brand, solid balance sheet, and growth prospects made it one of the most anticipated IPOs in history.

"Visa's blockbuster IPO is a positive bellwether for the markets," says Chip MacDonald, a capital markets partner at Jones Day. "This is particularly tangible for financial services -- more than $10 billion of the offering's proceeds will go Visa's bank members, increasing their income, capital and liquidity ahead of their first quarter financial reports."

Visa has raised about $17.3 billion in net proceeds, leaving approximately $600 million for the underwriters, many of which are cash-strapped Wall Street banks battered by troubled portfolios of mortgage-backed securities and by the credit crunch. JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Bank of America, Citigroup (C, Fortune 500), HSBC, UBS, Merrill Lynch, Wachovia, and Wells Fargo were among the main underwriters.

More money is coming for Visa should the underwriters exercise a 30-day option to sell another 40.6 million shares. That would push the value of the deal to about $19.7 billion and increase both Visa's net take and the underwriting fee pool.

For investors, Visa could pay off in the long term.

Morningstar analyst Michael Kon says $74 is a fair price for the stock, in part because Visa is one of the most respected brands in the world and because its massive network would be nearly impossible for a competitor to duplicate. The company also commands more market share than MasterCard, American Express (AXP, Fortune 500) and Discover Financial Services (DFS) combined.

Plus Visa has room to grow. The Nilson Report projects that paper-free payments will account for 70% of all payments by 2010 and that 56% of sales will be conducted via credit and debit cards from the current 40% or so. Visa, with its iconic brand, is poised to capture much of that growth. Morningstar estimates that Visa's total dollar volume will grow at a double-digit rate for the near future.

Much of the enthusiasm for Visa can also be attributed to MasterCard (MA), which went public in May 2006 at $39 a share. The stock nearly quintupled when it hit a peak near $227 last December, and has since fallen to about $210.

"There's no reason to believe, given the current turmoil writ large, that Visa will rise to MasterCard's level in the near term. But MasterCard is Visa's only head-to-head competitor and everything MasterCard does Visa does with greater skill," says Robertson.  To top of page

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