Visa IPO – The Good and the Bad

by Mike Holman

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.

Another post on the Visa ipo.
A good post on the Tim Horton’s mania.

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{ 9 comments… read them below or add one }

1 Nicolas

Lastly, VISA has not yet filed (or, as it would seem, has chosen not to) its paperwork in Quebec making impossible for people there to participate in the IPO under severe penalties for VISA.

I love the mention of the Tim Horton’s Buzz. It just goes to show that a decision should only be taken on sound analysis. I wonder who will do that.

Nicolas

2 Four Pillars

With our completely useless securities organizations here in Canada, I’m surprised any company would register here at all…

Do we really need separate entities for each and every province? Ridiculous… I think I’ll do a post about that!

Mike

3 WhereDoesAllMyMoneyGo.com

Please do!

4 Canadian Capitalist

IPO = It’s Probably Overpriced

5 Kyle

IPO’s are practically never a good deal for the little guy. It’s definitely a game stacked in the institutions’ favor. Besides, I like to cheer for the underdog: Discover (DFS). More room to grow than Visa.

6 Mr. Cheap

Yeah, years ago during the dot com boom people were drooling and doing whatever they could to get in on the latest IPO, totally crazy. I wouldn’t touch an IPO (if its a good company, its going to be expensive, and if its a bad company, why would you want to own it?).

Companies like to have their IPO when business is great. You’re not going to get a deal when that’s the environment they’re selling in.

7 Big Cajun Man

IPO = I won’t Profit On this

Sorry I had to add in too. The Brand Name is powerful for all of this, but where do they make money from? Royalties, if so, that’s not bad. If they made money off the interest charges, I’d buy in no matter WHAT the price, but instead I buy into the banks that charge the rates.

8 Four Pillars

Funny comments – I’m glad we all agree! 🙂

Mike

9 don

Visa’s a good deal. The credit culture is just starting to show in SE Asia and India. China is only starting to come on line with 30 million users. I think if you’re long term you’ll make nothing but cash on this stock.

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