With the upcoming VISA ipo (initial public offering) I thought it would be worthwhile to write about this event. I’m not really a stock trading kind of guy since I’m generally more comfortable with exchange traded funds, however I like to follow stocks for interest (and the occasional purchase.)
What’s the big deal with the VISA ipo?
This will be the biggest IPO in US history at around 17 billion dollars. In comparison the much heralded Google IPO was about $1.7 billion dollars which was one of the biggest technology IPOs ever.
What exactly do they do again?
They are in a great business where they get paid for processing transactions for banks that have credit cards. Visa does about two thirds of all such transactions in America. A good chunk of the money will go to the member banks which currently own VISA – given how most of them have been hit hard by the credit crunch, the money will come in handy!
Should I buy the VISA ipo?
The problem with this stock is lots of investors get excited about buying stocks in companies that they are familiar with. Here in Canada we had an IPO a few years ago for a company called Tim Horton’s Donuts (THI) which is our best known coffee shop. This ipo had a lot of buzz around it but the stock hasn’t done all well since the financial performance of a stock has very little to do with the public’s sentiment toward the company.
Another easy comparison is Mastercard which has gone up about 400% in the two years since its IPO. As ThickenMyWallet points out, there are significant differences between the two companies such as the market share. Visa already has a good majority of the market so it will be hard for them to improve on that.
Don’t forget – IPO prices are based on supply and demand – if there is enough buzz around the stock then the IPO price will go up and it will be harder to make money from it. This buzz will frequently cause the stock price to rise a lot in the beginning which is when the average investor can buy it so it’s often a classic case of buying high.
On the other hand – investors who bought shares of Google (Goog) have done quite well until recently.
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