Shares of Visa Inc. surged as much as 57% in their first day of trading Wednesday, despite some analysts' concerns about consumer spending, litigation, regulation, and competition.
Amid a broad market selloff, the shares closed at $56.50, 28% higher than the price Visa gave them Tuesday evening.
Joseph W. Saunders, Visa's chairman and chief executive, said in a press release that Visa's new public structure will help it respond to global changes in payment systems. "We operate in a large global market undergoing a significant shift from cash and check to electronic payments," he said. "Visa is well positioned to … take advantage of this migration to electronic payments."
Analysts said that since Visa, which operates the world's largest payment network, does not issue cards, it is in good position to weather the credit crisis.
Scott Sweet, the managing director of IPO Boutique, a Lutz, Fla., advisory firm, said that the only way the crisis could hurt Visa and its main competitor, MasterCard Inc., would be by prompting "a severe reduction in worldwide consumer spending." Meanwhile, Visa is expanding in emerging markets like Latin America, the Middle East, and China, he said.
MasterCard's stock price has more than quintupled since its IPO nearly two years ago. But Nicholas Einhorn, an analyst at Renaissance Capital LLC's IPOhome.com, said he does not expect Visa's stock price to rise as much. "MasterCard was significantly cheaper" due to greater fears about litigation, he said. "The IPO price for Visa already takes into account a lot of things that drove MasterCard up so much."
A report issued Wednesday by Morningstar Inc. called Visa "one of the best-positioned firms to benefit from the secular growth in paper-free payment methods" and valued its stock at $74 a share. But it also expressed wariness of antitrust lawsuits pending against Visa, potential regulatory pressures, and competition from MasterCard, Discover Financial Services, and American Express Co.
Visa will use most of the $18 billion of proceeds from the record IPO to redeem shares held by bank members and to help pay for legal settlements. But some observers said the IPO could open the door to new challengers.
Adam Levitin, an associate professor at Georgetown University Law Center, said, "Visa's biggest asset by far is its brand name." But though most banks would not want to take the risk of developing their own payment networks, the IPO "reduces banks' ownership interest in the networks," he said. "There are tremendous advantages that Visa has to being established — but that doesn't necessarily prevent anyone else from getting into the game."
