Visa's Bullish Narrative Clashes with DeepValue's Caution on Margins and Regulation

What happened

A recent Seeking Alpha article optimistically frames Visa as a tollbooth business with a 56.4% non-GAAP net profit margin and 12.4% projected EPS CAGR, trading below its 10-year average P/E. It highlights $16.7 trillion in annual transactions and an AA- credit rating, portraying the stock as an easy way to benefit from consumer spending. However, DeepValue's master report reveals a step-down in operating margins from over 66% to around 57%, driven by a 30% surge in expenses and $2.6 billion in litigation provisions in 2025. The report also notes a sharp 10% increase in share count over two quarters and ongoing regulatory risks, including DOJ antitrust litigation and potential fee caps that threaten high-yield cross-border revenues. Despite the article's upbeat tone, the underlying financial and regulatory pressures suggest Visa's premium valuation may not fully account for these headwinds.

Implication

The bullish article ignores critical risks detailed in filings, such as declining margins and rising share count, which signal underlying financial strain. Regulatory actions, like the DOJ lawsuit, could impose fee caps that compress Visa's most profitable segments, directly impacting long-term profitability. New payment flows, while growing, may have lower yields than traditional card transactions, diluting overall margins over time. At a forward P/E of 26.9x, the stock remains expensive relative to the potential downside from these headwinds, as highlighted in DeepValue's bear case of $260. Therefore, investors are better off waiting for a lower entry point around $310, where risk-reward improves, rather than chasing the optimistic narrative.

Thesis delta

The Seeking Alpha article does not materially shift the investment thesis but highlights a disconnect between surface-level optimism and Visa's financial realities. It reinforces the need for skepticism, as the article glosses over regulatory overhangs and margin compression that DeepValue identifies as key risks. Thus, the call to wait for a better entry near $310 remains unchanged, with no new catalysts to alter the cautious outlook.