VISA Report - Revised

1

University of Oregon Investment Group

May 20th, 2016

Technology

Covering Analyst:

Alex Marcinkowski – [email protected]

Investment Thesis

Visa’s current price represents extreme bullishness on Visa’s future and

exemplifies intrinsic overvaluation because on the attractiveness of Visa’s

industry and market positioning

The high government oversight in the payments processing industry limits

future growth and Visa’s open-loop payments system when compared to

similar closed-loop systems of Capital One and American Express

Visa’s hefty premium paid for Visa Europe does not adequately factor in

the riskiness of the transaction and overestimates growth in Europe where

less than half of personal consumption is settled in cash or check

Given Visa’s slowing growth over the past quarters, the company has begun

to reach a size and global scale where Visa will experience slower future

growth as they see difficulty expanding in a more mature market

Visa, Inc.

Ticker: V Rating: Underperform

Price Target: $66.26

Action Recommended: Exit Position

Current Price: $77.42

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One-Year Stock Chart

Key Statistics

52 Week Price Range

50-Day Moving Average 78.18

Estimated Beta

Dividend Yield

Market Capitalization (B)

3-Year Revenue CAGR

Trading Statistics

Diluted Shares Outstanding (mm) 2,006

Average Volume (3-Month) 8,257,080

Institutional Ownership

Insider Ownership

EV/EBITDA (LTM)

Margins and Ratios

Gross Margin (LTM)

EBITDA Margin (LTM)

Net Margin (LTM)

Debt to Enterprise Value

$60.00 - 78.06

1.15

0.70%

192,165

10.02%

68.68%

47.65%

.08x

93%

0%

18.62x

96.50%

University of Oregon Investment Group 5/20/16

UOIG 2

May 20th, 2016

32.1%

28.3%

20.7%

4.2%-14.6%

Service Revenues

Data Processing

Revenues

International

Transaction Revenues

Other Revenues

Client Incentives

Source: Google Images

Figure 2: Visa Revenue Segments

Source: SEC Filings, Visa

Figure 3: Visa Revenue Growth

Source: UOIG Spreads

Figure 1: Original BankAmericard

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Business Overview

Company History

Visa was launched in 1958 by Bank of America as the first consumer credit card

in the world. Initially named the BankAmericard, it was targeted at middle class

consumers and small to medium sized merchants across the United States. Over

the following years, various banks licensed the cards issued by Bank of America,

forming a network of financial institutions backing the payment system. As the

licensee program grew, they began experiencing problems with interchange fees,

oversight, and poor efficiency born out of the rapid and fragmented growth of the

card. In June 1970, Bank of America relinquished control of the BankAmericard

and handed the reins over to the issuing banks, who formed National

BankAmericard Inc. Later, in 1976, it was determined the Visa would form a

single network, and combine all the prior licensing agreements under a single

name, Visa.

In 2006, Visa announced that it would merge international brands and restructure

in order to IPO in the following year. On October 3, 2007 Visa completed their

initial public offering under the ticker V, and raised 19.1 billion dollars, making

it the largest initial IPO in U.S. history at that time. Currently, Visa is

headquartered in Foster City, California and employs over 11,000 people globally.

Business Structure

Visa is a payments technology company that provides electronic payments

processing to people and business across the world. Visa operates on open-loop

payments system, wherein Visa connects and facilities exchanges between issuers

and acquirers. The issuers are financial institutions who issue Visa cards to their

customers. The acquirers are the financial institutions that have contracts with

merchants to accept Visa cards and products. An important distinction is that Visa

does not earn any revenue nor are they liable for risk associated with interest or

fees paid by account holders of Visa products. The fees and rates are set by the

issuers.

The aforementioned fees are known as interchange reimbursement rates and are

paid by acquirers to the issuers, and Visa does not receive revenue related to these

fees. In the same manner, Visa does not earn revenue from fees charged to

merchants by acquirers for acceptance by acquirers, most widely known as the

merchant discount rate. These do however directly affect Visa’s ability to conduct

business profitably and attract clients.

Products and Services

Visa offers a variety of payment services that support the products that issuers

offer their account holders. The three products Visa supports are most broadly

defined as debit, credit and prepaid.

Visa’s utility is offering processing services that route payment information and

data to aid in authorization, clearing and settlement of transactions between

acquirers and issuers. Their centralized processing infrastructure is known as

VisaNet, where nearly all transactions are routed through. Visa's processing

services also encompass the merchant gateway and Visa Debit Processing

Services. Merchant gateway services make it easier for eCommerce merchants to

“accept, process and reconcile payments, manage fraud and safeguard payment


UOIG 3

May 20th, 2016

Source: IBISWorld

4% 5%

91%

IncreasedPositions

DecreasedPositions

HeldPositions

Figure 4: Visa Institutional Ownership Change

2398.00 2490.00

855.00 896.00

1543.00 1594.00

2014 2015

Total Cards (millions) Credit

Debit Growth

Growth

Source: NASDAQ

Figure 5: Visa Cards in Circulation

Source: Visa Investor Relations

Figure 6: Industry Revenue Growth

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Total Revenue % Growth

security online.” DPS provides comprehensive issuer processing services for

participating issuers of Visa debit, prepaid and ATM payment products.

Revenue segments

Visa recognizes revenue based on the 5 segments detailed below, all functioning

around their service of processing transactions.

Services Revenue

These are derived from support services for the delivery of Visa’s payment

products to financial institution clients. Service revenues are driven primarily by payments volume on Visa cards and products.

Data processing Revenue

These are derived from authorizing, clearing, settling, allowing access and

providing other support and maintenance services among issuing and acquiring

clients. Data processing revenues are primarily driven by the total number of

transactions Visa processes.

International Transaction Revenue

These are derived from cross-border transaction processing, which occurs when

the country of the issuer is different from that of the merchant, and currency

conversion services. These are primarily driven by cross-border volume.

Client Incentives

These are a contra-revenue segment that consists of long-term contracts with

financial institution clients and other partners for the purpose of increasing

acceptance and winning merchant transactions.

Other Revenues

These are derived mainly from license fees for use of the Visa branding, revenues

earned from Visa Europe in connection to the Visa Europe Agreement, fees on

account holder services and other activities related to Visa entities.

Industry

Overview

Visa operates in the credit card processing & money transferring industry. This is

a mature yet evolving industry with strong margins and high growth rates. The

industry has a medium level of concentration, with the top four industry players

commanding an estimated 50.3% of industry revenue in 2016. As a whole, the

industry has fantastic growth potential as consumers decrease cash and check

usage in favor for credit cards and other electronic payment methods.

Given the opportunities in this industry, it is also a highly competitive place to

operate. The industry generates a majority of its revenue through data processing

and transaction fees on debit and credit card purchases, although it consists of a

wide variety of services and activities related to financial intuitions. Because of

the financial nature of the industry, it is one that is very highly regulated and


UOIG 4

May 20th, 2016

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CCI %Growth

Source: Yahoo! Finance

Figure 8: Projected e-commerce Growth

Figure 9: Projected Consumer Confidence

Source: IBISWorld

Figure 7: Visa 5-year stock chart

Source: IBISWorld

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May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15

Adjusted Close 50-Day Avg 200-Day Avg

subject to increasing government oversight, litigation problems and anti-trust

violations.

Outlook

The outlook of the industry looks extremely promising over the coming years.

IBISWorld anticipates revenue for the Credit Card Processing and Money

Transferring industry to grow at an annualized rate of 4.4% to $72.0 billion in the

five years to 2021.The decline of cash and checks is a natural progression in

today’s technologically oriented society and directly correlates to growth in

electronic payments. Continued advances in mobile technology allow users to

access banking information, pay bills, and complete transactions on-the-go; a

significant advantage over cash and check. More specifically, technologies

produced by Apple, Google and PayPal have allowed consumers to sync credit

cards with a mobile phone for in-store purchases and have gained ground in the

credit card space at an alarming rate; and are now supported by almost all major

credit cards and banks in the United States.

Macro factors

Consumer Spending and Consumer Confidence

Consumer spending is an extremely important factor in industry demand, as

volume of purchases drives revenue for the industry. As consumers spend more

on products, Visa and others have the opportunity to process more transactions

and experience greater transaction volume. This spending is largely influenced by

consumers’ expectations of future economic conditions, measured by consumer

confidence. Consumer confidence is expected to increase by 3% over the next 4

years, which is an opportunity for payment processors.

E-Commerce Sales

E-commerce sales represent the percentage of consumer retail purchases done

online as compared to retail stores. Considering online sales are generally required

to be settled in electronic form, they are a key driver of industry revenue. E-

commerce sales have been steadily increasing for years, and have a 5.4% expected

growth from 2016-2021 according to IBISWorld. As e-commerce continues to

grow, the shift away from cash and check payments will by further exenterated

and consumers will naturally move towards electronic methods as the primary

form of payment.

Per Capita Disposable Income

Per capita disposable income reflects an individual’s ability to purchase goods

and services, particular non-essential items. As individuals spend more, it drives

payment volume and transaction numbers, which are important drivers in industry

demand. As more income signifies greater spending, industry operators garner

revenue from greater number and volume of transactions.

Regulatory Environment

The great value of the data being held and transported by firms in this industry

make it subject to high levels of government regulation and oversight. Rules were

implemented in the U.S. during 2011 and 2012 with respect to debit products

under the Dodd-Frank Act, which regulates debit interchange reimbursements

rates, and the availability of debit networks and merchant transaction routing


UOIG 5

May 20th, 2016

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2013A 2014A 2015A 2016E

EBITDA Margin EBITDA Growth

Figure 10: Cards outstanding by Company

Source: CardHub Statistics

Figure 11: Visa EBITDA Growth


Figure 12: Annual Purchase Volume (Trillions)

Source: CardHub Statistics

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choice. Many jurisdictions have adopted or are considering regulations that

require payments system participants, to monitor, identify, filter, restrict or take

other specific actions with regard to certain types of payment transactions. For

example, “U.S. federal legislation has been enacted that requires payment system

operators to implement a system that allows issuers to identify Internet gambling

transactions so they have the option to decline such transaction requests. State

governments have been interested in the potential blocking of Internet interstate

sales of cigarettes and alcohol, or the collection of state and local sales taxes on

such Internet purchases.” Implementing such systems increases costs for Visa,

and may reduce merchant acceptance of Visa-branded cards and payment

products for these purchases.

Competition

This industry is highly competitive due to its attractive growth prospects and

strong margins. Furthermore, the industry is fairly fragmented because it

comprises a wide variety of companies with different specialties. Services that

this industry performs include nearly every type of financial transaction,

comprising check processing, ACH payments, wire transfers, debit card and credit

card purchases, and e-money. The increase in technological innovation makes this

a rapidly evolving industry, wherein certain competitors are better positioned than

others to capitalize on future growth. Companies like PayPal, Visa, and

MasterCard are better positioned for future changes because they represent the

growing segments of this industry as more payments are being conducted

electronically. In the past few years, new firms have entered the industry because

of innovations in technology and have been able to establish themselves legitimate

market operators.

Although the industry has a large amount of participants, the majority of revenue

is captured by the larger processing enterprises who have the financial resources

to establish a brand and offer competitive prices, which could cause establishment

numbers to decrease. Because universal acceptance of a firm’s products is such a

necessity in this industry, large companies are born out of necessity for scalable

operations. That being said, the raise of e-commerce and e-money have paved the

way for new players to enter the industry with innovative technologies to serve

enterprises and consumers in unique ways. While new players may be entering

the market, the very nature of the industry itself means they are likely buyout

targets, rather than establishment players. In credit card and payments processing,

the market is likely saturated enough to prevent future pure-play competitors from

entering.

Consolidation in the banking sector, as a result of the global financial crisis, has

hurt the industry. As a result of consolidation among banks, existing client

accounts have closed, leaving a smaller pool of potential clients. Now revenue is

derived from a smaller number of large clients, who have significant bargaining

power over industry firms. This consolidation also leaves firms exposed to

increased risk in the event a contract with a large institutional client is lost. This

consolidation has inherently tightened margins and increased competition for

financial clients. Any further merger and acquisition activity in the banking sector

will have a negative effect on market participants in this industry, further

increasing competition in an already highly competitive market.

As the world increasingly shifts to electronic payment methods over cash and

check, this will spur the entrance of new competitors seeking to capitalize on this.

Most importantly, the ability to have excellent mobile and e-commerce

technology will by key to sustained success in this industry. The ability to provide


UOIG 6

May 20th, 2016

Revenue $13,880

EBIT $9,064

Net Income $6,328

Operaing Cash Flow $6,822

NWC -$1,494.00

FCF $5,990

EBITDA $9,558

Figure 13: Enterprise Value


Source: IBISWorld

Figure 14: Visa Key 2015 Statistics


Figure 15: Visa Dividend Increases


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Visa MasterCard American

Express

PayPal Total System

Services

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8/1/2011 8/1/2012 8/1/2013 8/1/2014 8/1/2015

cost-effective, easy-to-use and secure platforms will be a differentiator among

firms going forward.

Barriers to entry

Barriers to entry in this industry are very high due to its highly technical and

regulated nature. Participants in the industry must be in accordance with all

federal and state laws associated with money transferring on top of establishing a

client base in a highly competitive industry. The initial capital cost of building a

client base is immense and nearly impossible for a firm competing against

streamlined, establish brands like Visa and PayPal. Additionally, firms must

invest heavily in infrastructure like data centers and server farms to securely

process large numbers of transactions. Continual capital expenditures are

necessary as well in order to maintain state-of-the-art infrastructure. This industry

requires necessary economies of scale in order to be successful, and to attain those

benefits, a firm must be very large and global in nature.

Strategic Positioning

Market Share

Visa dominates the global market for electronic payments, accounting for nearly

half of the global credit card and three quarters of global debit card transactions.

Because of this, they have built and maintained a strong client base of the biggest

merchants and banks in the world. The Visa brand has become synonymous with

cards and their recognition as the premier provider of processing services is un-

paralleled. Market share is of particular importance in this industry because the

success of Visa depends on the universal acceptance of their cards. As more

merchants accept their cards, it incentivizes others to due to the same because

more of their customers will be using Visa cards.

Leverage over Clients

As Visa is the largest payment processor in the world, it holds significant leverage

over its financial and merchant clients. The amount of business Visa represents

for financial institutions makes them an indispensable client. Furthermore,

customers of financial firms and merchants alike have grown accustomed to Visa

as a form of payment and are familiar and comfortable with the brand. As such,

the Visa Brand has significant staying power due to its entrenchment in the

industry.

Wide Economic Moat

Visa’s wide moat is primarily due to the irreparability of its payment network. A

payment network that is widely accepted is very attractive to customers, and a

payment method that many customers use is very attractive to merchants.

Therefore, the sheer amount of use and universality of Visa products makes it a

difficult company to emulate. To create the system that Visa has requires large

contracts with banks, merchants and the ability to establish acceptance of the

firm’s proprietary payment system. In addition, the trust and security Visa has

built into their relationships is something merchants and financial value as

paramount when dealing with money transfers.

Security

Visa’s highly secure network makes it an ideal choice for merchants, banks and

consumers alike. Visa engages actively with financial institutions, merchants,


UOIG 7

May 20th, 2016

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Figure 16: Visa New Products


Figure 17: Visa Projected EBIT Growth

Figure 18: Visa CAPEX Projections

mVisa

Visa Checkout

Visa PayWave

Visa Direct

Mobile cardless purchasing solution

E-Merchant bank account and

payment system

Payment through smartphone and

contactless card

Peer-to-peer payment system


governments, regulators, and law enforcement to mitigate security concerns and

establish best practices in the industry. At Visa’s scale, they have the size and

resources necessary to innovate security solutions and maintain state-of-the art

software and hardware. “In 2015, Visa launched a number of new fraud

prevention and risk management capabilities, including Mobile Location

Confirmation, Decision Manager Replay for merchants, and an enhanced Alerts

capability available through APIs. Visa also introduced tokenization, which

replaces account number with digital token for online and mobile payments.” This

removes essential account information and has potential to reduce fraud risk. Visa

also introduced EMV chip technology in 2015, which reduces point-of-sale fraud

by securing data by storing it on chips, instead of the magnetic stripes.

Business Growth Strategies

E-Commerce and M-Commerce

The growth of e and m-commerce require the need to move beyond physical

cards and adapt technology to be able to effectively process payments online or

on the phone. Visa needs to adapt its technology in order to seamlessly operate

over these new platforms and need to ensure they promote acceptance over both

their merchant and financial institution clients. Visa has actively sought

partnerships with companies in this space like Samsung, Google, Square and

Apple. The early success of Apple and Samsung Pay bode well for Visa’s

success in these areas.

New Payments Products

Visa is attempting to maintain the dominance they have seen in the physical

world into the digital age. In 2015, Visa launched their Digital Solutions

Platform. 2015 also started the mVisa pilot in India. mVisa is a new mobile

payment service that enables consumers to make cardless purchases, pay bills

and send money to other individuals via “pushing” a payment from their bank or

stored value account via their mobile phone as opposed to the traditional method

of a merchant “pulling” funds on a terminal from a piece of plastic. It is being

piloted with merchants across the Bangalore region and with customers of our

four large Indian bank clients.

Visa Checkout: Visa Checkout is a payment method that allows consumers to

pay for goods online on a smartphone, tablet, laptop or desktop. Visa Checkout

is essentially the equivalent of a PayPal account, although it is not as widely

accepted presently. 2015 did see the expanded the adoption of Visa Checkout

and today Visa Checkout covers nearly $85 billion of addressable E-commerce

volume with nine million registered users in 16 countries. This service is

presently available for e-commerce merchants and financial institutions in 16

countries around the world including Australia, Argentina, Brazil, Canada,

Chile, China, Colombia, Hong Kong, Malaysia, Mexico, New Zealand, Peru,

Singapore, South Africa, United Arab Emirates, and the U.S.

Visa payWave: With Visa payWave technology, consumers are able to pay for

products and services via smart phone or other devices, and by using their

contactless cards at physical retailers. PayWave is essentially Visa’s proprietary

application that functions similarly to Apple Pay or Samsung Pay, but it can also

be enabled for physical cards.


UOIG 8

May 20th, 2016

Figure 19: Visa International Growth


Figure 20: Visa Growth since Pitch


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Figure 21: Visa Executive Compensation

Source: Morningstar

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Visa Direct: Visa Direct provides a fast, secure and convenient solution for

Visa’s ecosystem of clients and partners. It enables customers to send and

receive person-to-person payments and funds disbursements, and facilitates

business to business settlements directly to eligible Visa account holders quickly

and securely.

Visa Europe

In November of 2015 Visa announced the signing of an agreement to acquire

Visa Europe. Visa Europe is the only regional association which didn’t merge

into Visa Inc. in 2007 and remained a separate entity owned by its members.

Visa Europe represents a significant growth opportunity for Visa and its ability

to capitalize on the European market. The terms of the agreement are an upfront

payment of 11.5 billion euros and 5 billion euros’ worth of convertible preferred

stock followed by an earn-out provision. The agreement was then amended to

increase the upfront by 750 million euros and replace the earn-out with a 1-

billion-euro payment at 4% annual interest payable 3 years after closing. The

agreement hopes to realize synergies between the two entities and their clients.

The two companies have worked closely together since their split before Visa’s

IPO in 2007. The full integration is expected to take 3 to 4 years after closing.

China and Emerging Markets

China is currently writing final rules which will create a process to allow

payment processing firms to apply for a license to compete in the domestic

Chinese electronic payments market. Visa is actively working on plans and

intend to submit their bid to enter the chines market this year. This is a long-

term play and Visa views this a long-term commitment and opportunity to help

grow commerce domestically in China. In 2015, Visa added over 140 million

new cards and delivered meaningful progress in expanding into new acceptance

categories, including education, transit, debt repayment, childcare and taxes.

Visa has 69 Visa Ready mPOS (mobile phones as acceptance devices) and they

now estimate that 5.8 million merchants are using mPOS. In addition, Visa

brought new players into the financial system through a series of Financial

Inclusion programs around the world, including developing a women’s mobile

banking network in Bangladesh; increasing access to digital payments to village

communities in Vietnam; developing alternative credit scoring models in Kenya;

and improving micro-merchant acceptance in Mexico.

Management and Employee Relations

Charles W. Scharf – CEO Charles has served as Chief Executive Officer and a director of Visa Inc. since

November 1, 2012. Previously, Mr. Scharf was a Managing Director of One

Equity Partners, the private investment arm of JPMorgan Chase & Co. From July

2004 to June 2011, Mr. Scharf served as Chief Executive Officer of Retail

Financial Services of JPMorgan Chase & Co. For 2015, Charles Scharf’s

compensation was $15,180,000; $4,310,000 of which was paid in cash.

Ryan McInerey – President

Ryan McInerney is President of Visa Inc. where he is responsible for leading

Visa’s global client organization, He also is responsible for client support


UOIG 9

May 20th, 2016

15.4%

21.5%

15.4%

20.8%

25.3%

1.7%

14.9%

20.7%

18.1%

25.7%

20.5%

0.0%

Healthcare Tech Financial IME Consumer Cash

Tall Firs Benchmark

12.8%

3.6%

81.0%

2.6%

8.7%

18.7%

72.7%

0.0%

Small Mid Large Cash

Tall Firs Benchmark

Figure 22: Tall Firs Portfolio Allocation

Source: UOIG PowerPoint

Figure 23: Fall Firs Benchmarking

Source: UOIG PowerPoint

services, global product management and a new solutions group, which focuses

on building and bringing to market new products and services to Visa’s issuer,

acquirer and merchant partners. Prior to joining Visa, Mr. McInerney served as

CEO of Consumer Banking for JPMorgan Chase. His toal compensation for 2015

was $8,154,275.

Vasant M. Prabhu – CFO and Executive VP

Vasant M. Prabhu joined Visa Inc. in February 2015 as Executive Vice President

and Chief Financial Officer. In his role, he overseas Visa Inc.’s financial

strategies, planning and reporting, in addition to all finance operations and

investor relations. Prabhu joined Visa from NBCUniversal Media, LLC, where he

served as chief financial officer. His total compensation for 2015 was $6,056,253.

Rajat Taneja - Executive VP of Technology

Rajat Taneja is Executive Vice President of Technology for Visa Inc., responsible

for the company's technology innovation and investment strategy, product

engineering, global IT and operations infrastructure. He joined Visa in this role in

November 2013. Prior to joining Visa, Taneja was Executive Vice President and

Chief Technology Officer of Electronic Arts Inc., from October 2011 until

November 2013. His total compensation for 2015 was $8,400,625.

Management Guidance

Management guidance has been historically accurate, leaning on the conservative

side of average over performance of expectations of 1.6%. They provide yearly

and quarterly guidance on many metrics, including free cash flow, revenue,

operating margin and EPS among others. Management has typically hit these

targets within a reasonable error of +/- 2% for the prior 3 years of guidance.

Portfolio Strategy

Visa is currently held in the Tall Firs portfolio and has been held since January

31, 2014. The purchase price was $216.22, or $52.88, adjusted for the stock split

with an implied price target of $57.57. Visa is currently trading at $76.83 a share,

representing a 45% appreciation on the investment. Visa has also paid out $1.20

of dividends per share over this period.

Given Visa’s intrinsic overvaluation, Visa is being pitched as a sell for the Tall

Firs Portfolio.

Recent News

Visa Inc (V) and Wal-Mart Stores, Inc. (WMT) Are at Each Other’s Throats

… Again - Nasdaq

Walmart is suing Visa over the signature confirmation method Visa is insisting

Walmart rely on to use for its payment confirmation. Walmart wants to require a

PIN to authorize transactions, but this results in lower fees earned by Visa. Visa

and Walmart have previously engaged in lawsuits, and the high swipe fees

continue to be a point of contingency between payment processers and

merchants.


UOIG 10

May 20th, 2016

Prepaid

Card

Services

7%

Check

Processing

15%

ACH

Products

18%

Credit

Card

Services

22%

Debit Card

Services

38%

Figure 24: Industry Product Mix

Source: IBISWorld

Figure 25: Industry Cliental Breakdown

Source: IBISWorld

Corporate Data security

40%

Security Threat

Protection40%

Cost Reduction and

Risk Management

20%

Catalysts

Upside

Visa has premier market position as the biggest player in the payments

processing industry and can capitalize on the economies of scale this

industry is dependent on

The merger with Visa Europe represents significant growth potential and

the completion of a truly global reach that could see increased synergies

for Visa and its subsidiaries.

Visa’s early focus on e and m-commerce show a willingness by

management to adapt to a changing industry and become a leader in

digital payments

Downside

The high regulation in this industry is poise to increase both domestically

and internationally, specifically for Visa as the face pf the industry, and

could hurt Visa’s ability to create the healthy margins it currently has

Visa’s pending litigation with Walmart and others could result in

significant penalties and cash payouts

The US and European markets only settle around 30% of payments in

cash or check, meaning there isn’t as much room for Visa to grow in

developed countries

Comparable Analysis

I valued Visa’s common stock using comparable companies that operate in the

credit card, mobile, and e-payments processing industry. To screen for companies,

I selected ones that hade market capitalization of at least $10 billion and operated

sin the same industry as Visa, either with similar offerings or offering a substitute

service. I then screened based of 3 year EBIT growth rates, D/E ratios, and brand

equity values. Following this, I eliminated companies that operated as commercial

banks in addition to extending credit, because they would handle debt, interest

and cash much differently than tech firms. As a result, Capital One, Discover and

Synchrony Financial were not used despite being solid comparables. The

following 4 companies are a result of this screening process and are weighted in

proportion to the number of the above metrics they fulfill.

MasterCard – MA (50%)

“MasterCard Incorporated, a technology company, provides transaction

processing and other payment-related products and services in the United States

and internationally. It facilitates the processing of payment transactions, including

authorization, clearing, and settlement, as well as delivers related products and

services. The company also offers value-added services, such as loyalty and

reward programs, and information and consulting services. In addition, it provides

cross-border and domestic processing services; and issuer and acquirer processing

solutions, and payment and mobile gateways. Further, the company offers various

payment products and solutions for cardholders, merchants, financial institutions,

and governments; programs that enable issuers to provide consumers with cards


UOIG 11

May 20th, 2016

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

V MA AXP PYPL TSS

Revenue Growth 2016 Revenue CAGR

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

V MA AXP PYPL TSS

EBIT Margin EBITDA Margin

Figure 26: Multiples Weightings


Figure 27: Comps Revenue Projections


Figure 28: Comps Margins


Multiple Implied Price Weight

EV/Revenue 51.77 -

EV/Gross Profit 58.27 -

EV/EBIT 86.72 -

EV/EBITDA 78.23 66.67%

EV/(EBITDA-Capex) 83.53

Market Cap/Net Income = P/E 91.62 33.33%

Price Target $82.70

Current Price 77.42

Undervalued 6.82%

to defer payments; payment products and solutions that allow its customers to

access funds in deposit and other accounts; prepaid payment programs and

management services; and commercial payment products and solutions.” –

Yahoo! Finance

MasterCard is the best pure play competitor to Visa. Offering nearly identical

services in an open-loop system like Visa, MasterCard represents Visa’s biggest

and most similar competitor. Second only to Visa in size, MasterCard has similar

EBIT growth rates, D/E ratios and brand equity value, therefore warranting a 50%

weighting.

American Express – AXP (20%)

“American Express Company, together with its subsidiaries, provides charge and

credit payment card products and travel-related services to consumers and

businesses worldwide. The company’s products and services include charge and

credit card products; network services; expense management products and

services; travel-related services; and stored value/prepaid products. Its products

and services also comprise merchant acquisition and processing, servicing and

settlement, merchant financing, point-of-sale, and marketing and information

products and services for merchants; fraud prevention services; and the design of

customized customer loyalty and rewards programs. The company sells its

products and services to consumers, small businesses, mid-sized companies, and

large corporations through direct mail, online applications, in-house and third-

party sales forces, and direct response advertising.” – Yahoo! Finance

American Express represents a large-cap competitor to Visa that also operates on

a global scale. Their similar EBIT growth rates and product and service offerings

make them a near pure-play competitor. American Express does operate on a

closed-loop system, meaning they interact directly with consumers and

merchants, not the banks, which slightly distorts their risk, debt and revenue. Even

so, American Express represents an important alternative structure to Visa with

similar brand equity, warranting a 20% weighting.

PayPal Holdings – PYPL (20%)

“PayPal Holdings, Inc. operates as a technology platform company that enables

digital and mobile payments on behalf of consumers and merchants worldwide. It

enables businesses of various sizes to accept payments from merchant Websites,

mobile devices, and applications, as well as at offline retail locations through a

range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo,

and Xoom products. The company's platform allows customers to pay and get

spaid, transfer and withdraw funds to their bank accounts, and hold balances in

their PayPal accounts in various currencies.” – Yahoo! Finance

PayPal is Visa’s greatest threat in the e and m-commerce industry, and represents

the shift to these payment methods in the market. PayPal operates exclusively

over the web or phone and acts as a merchant account over the internet.

Qualitatively, PayPal competes directly with Visa in these spaces and has similar

brand equity. PayPal also has high growth rates and market capitalization,

warranting a 20% weighting.


UOIG 12

May 20th, 2016

Figure 29: MasterCard 5-year Return


Figure 30: Visa Europe

Source: Visa Europe Online

Figure 31: American Express 5-year Return


$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00



$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00


Adj Close 50-Day Avg 200-Day Avg

Total System Services – TSS (10%)

“Total System Services, Inc. provides payment processing, merchant, and related

payment services to financial and nonfinancial institutions in the United States,

Europe, Canada, Mexico, and internationally. The company offers account

processing and output services, including processing the card application,

initiating service for the cardholder, processing card transaction for the issuing

retailer or financial institution, and accumulating the account’s transactions. It

also provides fraud management services to monitor the unauthorized use of

accounts; fraud detection systems for identifying fraudulent transactions; and

other services, such as customized communication services to cardholders, and

information verification services associated with granting credit, debt collection,

and customer service.” – Yahoo! Finance

Total System Services acts as a sort of middle-man between merchants and credit

card companies, helping merchants manage credit card relationships with

financial institutions. Therefore, they operate in the same industry as Visa, but

provide a different service and represent a good comparable. TSS has strong

growth margins, similar D/E ratios but are limited in size and brand equity,

warranting a 10% weighting.

Discounted Cash Flow Analysis

In order to evaluate the intrinsic value of Visa, I constructed a DCF analysis with

a projection period through a 2024 fiscal year. After determining enterprise value,

debt (less non-operating cash) was subtracted and divided by diluted shares

outstanding to obtain an implied price.

Revenue Model

Revenue was forecast based on growth assumptions for each of Visa’s revenue

segments. I was able to break down the revenue drivers for the main segments,

and was able to see past correlation with the driver and the individual revenue

segment. Then, I qualitatively projected growth for each segment based on

driver/segment correlation and my beliefs about the growth of each segment. In

the short run, my projections were in-line with management guidance. In the

longer run, I incorporated the eventual decline of data processing from regulatory

oversight and larger growth in international transaction revenues from emerging

markets and globalization. Client incentives was held constant as a percent of

revenue to be conservative in an industry where competition is increasing.

Visa Europe Acquisition

The visa Europe Acquisition was factored into the model in several ways. I

projected the acquisition to go through in Q4 of this year based on management

guidance and a conservative timetable based on current delays. Visa Europe

revenue was projected separately based on management guidance and then

trended to reflect Visa’s revenue growth as they become more efficient and

powerful under the partnership. In addition, the shares of preferred stock to be

issued in the merger were factored in the Treasury Stock Method to calculate total

shares outstanding and are dilutive in nature. The cash payment is reflected in the

DCF in Q4 of 2016 and in 2019 and reflect the euro value of the payout multiplied

by Visa’s euro currency hedge rate. Visa Europe’s PP & E are added in Q4 of


UOIG 13

May 20th, 2016

Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate

-0.5% 0.0% 0.5% 1.0% 1.5%

0.89 73.62 76.81 80.42 84.55 89.34

0.99 67.70 70.35 73.33 76.71 80.58

1.09 62.54 64.76 67.25 70.05 73.21

1.19 58.00 59.89 61.98 64.31 66.94

1.29 53.98 55.59 57.37 59.34 61.53Ad

juste

d B

eta

Figure 32: Beta Weightings


Figure 33: Visa Network


Figure 34: Sensitivity Analysis, Visa


Beta Cash Adjusted SE Weighting

1 Year Daily Beta 1.14 1.24 0.06 0.00%

3 Year Daily Beta 1.12 1.21 0.05 50.00%

5 Year Daily Beta 1.03 1.11 0.03 30.00%

3 Year Weekly Beta 1.07 1.15 0.10 0.00%

5 Year Weekly Beta 1.02 1.10 0.07 0.00%

3 Year Daily Hamada - Comps 1.08 1.08 20.00%

Final Cash Adjusted Beta 1.15

2016 to Visa’s total PP & E and are depreciated from there. Overall, Visa Europe

has had historically lower margins than Visa and this was taken into account when

projecting based off of revenue. Visa should be able to cut costs in Visa Europe

as they adapt to Visa’s more streamlined business model and are consolidated into

a single Visa Europe unit, not beholden to European banks. Any near term

operational problems are not factored into the valuation as Visa has historically

handled mergers well and the two companies have a strong working relationship.

Any temporary increase in operational expenses or working capital requirements

should be material in nature and would not affect the overall valuation.

Beta

The beta used in my valuation was 1.15, arrived at by taking a combination of

Visa’s 3-year daily, 5-year daily and a regressed comparable beta. The benchmark

for regression was the S & P 500 index. Visa’s beta seems reasonable given its

exposure to macro-economic spending offset by a global reach. Visa’s beta is in

line with comparable companies.

Cost of Goods Sold

As Visa does not issue any physical cards, their cost of services consists of

Network and Processing fees, which is the cost to process transactions and

maintain the VisaNet system, is very low at about 4% of revenue and trended

down to 3% down due to increased economies of scale and technological

improvements.

Personnel

Personnel expenses represent Visa’s biggest cost, historically around 15% or

revenue. These expenses consist of employee salaries, share-based compensation

and incentives. I trended this upward to 17% of revenue due to completion for

talent among tech firms.

Marketing

Marketing has historically made up around 6% of revenue, and has been trending

downward since Vis’s IPO. I continued this trend into the future as Visa continues

to expand and sees reduced marginal returns on advertising for a company that

already has so much brand equity.

General & Administrative

General & Administrative consists of corporate expenses, facilities costs, travel

activities and foreign exchange gains and losses. This was trended upward due to

conservatism surrounding the strong US dollar and uncertainty in Forex markets.

Visa’s hedging has been historically poor, so this estimate represents a safety-net

for future hedging strategies.

Depreciation & Amortization

Deprecation was projected as a percentage of net PP & E using the historical

depreciable life of the underlying assets as a benchmark. Visa does not have many

tangible assets, so this includes amortization of software as well. Depreciation is

scheduled to remain fairly steady over the coming years.


UOIG 14

May 20th, 2016

Undervalued/(Overvalued)

Terminal Growth Rate

-0.5% 0.0% 0.5% 1.0% 1.5%

0.12 (37.97%) (35.86%) (33.50%) (30.84%) (27.84%)

0.10 (29.27%) (26.80%) (24.05%) (20.96%) (17.46%)

0.08 (19.08%) (16.20%) (12.99%) (9.38%) (5.29%)

0.06 (7.11%) (3.74%) 0.03% 4.26% 9.05%

0.04 7.01% 10.97% 15.40% 20.37% 26.00%

WA

CC

Considerations Implied Price

Terminal Growth Rate

Avg. Industry Debt / Equity 28.57%

Avg. Industry Tax Rate 26.00%

Current Reinvestment Rate 6.06%

Reinvestment Rate in Year 2024E 5.86%

Implied Return on Capital in Perpetuity 9.10%

Terminal Value as a % of Total 61.5%

Implied 2015A EBITDA Multiple 14.1x

Implied Multiple in Year 2024E 3.8x

Free Cash Flow Growth Rate in Year 2024E 3%

Termianl Year CAPEX % of Revenue 6%

Figure 35: Sensitivity Analysis, Visa



Figure 18: Visa Final Price


Figure 36: DCF Considerations

Method Implied Price Weight

Discounted Cash Flow 62.16 80%

Forward Comparables 82.70 20%

Implied Price 66.26

Current Price 77.42

Overvalued (14.41%)

Litigation Provision

Visa has historically been involved in frequent litigation and has also paid out

significant penalties in the past, most notably $4.1 billion in 2012. Considering

they currently have pending litigation with several firms, I accounted for possible

penalties in my model by building in over $1.5 billion in possible penalties

through 2023.

Capital Expenditures

Capital expenditures has been historically low for Visa as a percentage of

Revenue and represent investments in technology assets and VisaNet

infrastructure. I believe Visa will continue to have to invest in assets in order to

account for increasing volume and to maintain state-of-the art security. Therefore,

Capital expenditures is trending slightly upward in the future.

Tax Rate

Visa’s tax rate was projected at 30% going forward. This was derived from

guidance, industry figures and market consensus. Determining Visa’s marginal

tax in countries where it records revenue was not possible due to Visa’s lack of

transparency around this and changing sales mix in revenue generating countries.

Net Working Capital

Net working capital was determined based on current assets less cash, trade and

investment securities. The receivables and payables were projected based on days’

sales outstanding and are projected to be fairly constant as a percent of revenue

with a slight downtrend in settlements. Deferred tax assets were eliminated from

calculation because Visa recently reclassified them as long-term assets. In the

same manner, tax liabilities were also netted out of the historical current liabilities

and then projected net of tax liabilities to maintain cohesiveness. Current client

incentives were projected based off their historical average ratio with client

incentive liabilities (the matching account). Customer collateral was removed

from calculation because it is an offsetting account. Visa Europe’s NWC was used

merely as a reference. Their current structure of ownership by European Banks

heavily distorts their payables and receivables

Recommendation

As a global leader in payments processing, Visa has established itself as an

excellent business with a wide economic moat. However, there is a distinction

between a good investment and a good business. Investors are overvaluing Visa

based on unrealistically high expectations about future performance. While this is

possible, the chance of litigation, merger problems, or slowing growth is a far

more likely outcome. If Visa does not maintain double digit growth for the

foreseeable future, they are likely to decline in value as investors re-evaluate their

expectations. The level of upside based on Visa’s current price is extremely slim,

and therefore should be sold. With a final price target of $66.26, Visa is

intrinsically overvalued at its current price of $77.42. My valuation warrants an

underperform rating, and therefore I recommend a sell for the Tall Firs Portfolio.

UOIG 15


Comparables Analysis V MA AXP PYPL TSS

($ in millions) Visa Inc Mastercard Inc

American

Express Co

PayPal Holdings,

Inc.

Total System

Services

Stock Characteristics Max Min Median Weight Avg. 50.00% 20.00% 20.00% 10.00%

Current Price $95.63 $38.98 $58.51 $73.67 $77.42 $95.63 $63.52 $38.98 $53.50

Beta 1.23 0.93 1.15 1.15 1.15 1.23 0.93 1.17 1.13

Size

Short-Term Debt 2,596.00 - 9.19 521.04 - - 2,596.00 - 18.38

Long-Term Debt 47,311.00 - 3,108.64 11,417.13 15,876.00 3,333.00 47,311.00 - 2,884.27

Cash and Cash Equivalent 25,045.00 1,932.11 3,738.50 8,165.81 15,943.00 4,894.00 25,045.00 2,583.00 1,932.11

Non-Controlling Interest 32.00 - 14.54 18.91 - 32.00 - - 29.07

Preferred Stock 1,600.00 - - 320.00 - - 1,600.00 - -

Diluted Basic Shares 2,001.99 185.85 1,018.78 994.54 2,001.99 1,083.29 954.26 1,217.29 185.85

Market Capitalization 192,165.00 9,942.80 54,032.17 75,379.45 192,165.00 105,544.61 60,614.34 47,450.01 9,942.80

Enterprise Value 192,098.00 10,942.41 65,971.67 79,490.71 192,098.00 104,015.61 87,076.34 44,867.01 10,942.41

Growth Expectations

% Revenue Growth 2016E 23.41% (2.24%) 12.16% 9.30% 11.47% 8.47% (2.24%) 15.84% 23.41%

% Revenue Growth FWRD CAGR 15.43% 0.16% 11.82% 9.67% 13.45% 10.48% 0.16% 15.43% 13.17%

% EBITDA Growth 2016E 25.89% 5.51% 10.82% 10.34% 13.47% 7.72% 5.51% 13.93% 25.89%

% EBITDA Growth FWRD CAGR 15.32% 5.87% 13.16% 11.40% 12.00% 11.42% 5.87% 14.91% 15.32%

% EPS Growth 2016E 38.52% 3.21% 9.19% 6.88% 38.52% 3.21% 3.35% 15.50% 15.04%

% EPS Growth FWRD CAGR 16.51% 5.29% 12.79% 11.91% 11.33% 12.47% 5.29% 16.51% 13.11%

Profitability Margins

Gross Margin 100.00% 38.55% 80.17% 85.92% 96.48% 100.00% 100.00% 60.35% 38.55%

EBIT Margin 67.08% 20.61% 26.80% 39.12% 67.08% 53.11% 30.87% 20.61% 22.73%

EBITDA Margin 70.10% 26.42% 34.10% 44.27% 70.10% 57.39% 34.76% 26.42% 33.43%

Net Margin 47.69% 13.33% 14.93% 25.88% 47.69% 37.22% 16.20% 13.33% 13.65%

Credit Metrics

Interest Expense $1,706.00 - $91.00 $394.20 $425.00 $87.00 $1,706.00 - $95.00

Debt/EV 0.57 - 0.15 0.16 0.08 0.03 0.57 - 0.27

Leverage Ratio 4.47 - 1.68 1.45 1.46 0.55 4.47 - 2.82

Interest Coverage Ratio 69.17 - 8.70 36.98 25.52 69.17 6.54 - 10.85

Operating Results - 2016

Revenue $32,083.00 $3,084.00 $10,599.50 $14,110.60 $15,471.90 $10,486.00 $32,083.00 $10,713.00 $3,084.00

Gross Profit $32,083.00 $1,189.00 $8,475.50 $13,071.50 $14,927.66 $10,486.00 $32,083.00 $6,465.00 $1,189.00

EBIT $10,378.24 $701.00 $3,888.50 $5,276.80 $10,378.24 $5,569.00 $9,903.00 $2,208.00 $701.00

EBITDA $11,153.00 $1,031.00 $4,424.00 $5,908.70 $10,845.26 $6,018.00 $11,153.00 $2,830.00 $1,031.00

Net Income $7,378.10 $421.00 $2,665.50 $3,318.80 $7,378.10 $3,903.00 $5,198.00 $1,428.00 $421.00

Capital Expenditures $1,786.00 $127.00 $432.00 $599.70 $498.43 $190.00 $1,786.00 $674.00 $127.00

Multiples 0 #NUM! 0

EV/Revenue 12.42x 2.71x 3.87x 6.69x 12.42x 9.92x 2.71x 4.19x 3.55x

EV/Gross Profit 12.87 2.71 8.07 7.81 12.87 9.92 2.71 6.94 9.20

EV/EBIT 20.32 8.79 17.14 16.72 18.51 18.68 8.79 20.32 15.61

EV/EBITDA 17.71 7.81 13.23 14.44 17.71 17.28 7.81 15.85 10.61

EV/(EBITDA-Capex) 20.81 9.30 14.98 16.16 18.57 17.85 9.30 20.81 12.10

Market Cap/Net Income = P/E 33.23 11.66 25.33 24.86 26.05 27.04 11.66 33.23 23.62

Appendix 1 – Relative Valuation

UOIG 16


Discounted Cash Flow Analysis Q1 Q2 Q3 Q4

($ in millions) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015A 3/31/2016A 6/30/2016E 9/31/2016E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Total Revenue $8,065.00 $9,188.00 $10,421.00 $11,778.00 $12,702.00 $13,880.00 $3,565.00 $3,626.00 $3,823.22 $4,457.68 $15,471.90 $18,546.02 $20,446.31 $22,591.48 $24,972.31 $27,258.13 $29,342.59 $31,173.26 $32,648.55

% YoY Growth 16.70% 13.92% 13.42% 13.02% 7.85% 9.27% 5.41% 6.37% 5.44% 16.60% 11.47% 19.87% 10.25% 10.49% 10.54% 9.15% 7.65% 6.24% 4.73%

Network and Processing 425.00 357.00 414.00 468.00 507.00 474.00 128.00 126.00 134.00 156.24 544.24 640.37 692.76 750.83 813.80 870.65 918.25 955.37 979.46

% Revenue 5.27% 3.89% 3.97% 3.97% 3.99% 3.41% 3.59% 3.47% 3.50% 3.50% 3.52% 3.45% 3.39% 3.32% 3.26% 3.19% 3.13% 3.06% 3.00%

Gross Profit $7,640.00 $8,831.00 $10,007.00 $11,310.00 $12,195.00 $13,406.00 $3,437.00 $3,500.00 $3,689.22 $4,301.45 $14,927.66 $17,905.64 $19,753.55 $21,840.66 $24,158.51 $26,387.47 $28,424.35 $30,217.89 $31,669.10

Gross Margin 94.73% 96.11% 96.03% 96.03% 96.01% 96.59% 96.41% 96.53% 96.50% 96.50% 96.48% 96.55% 96.61% 96.68% 96.74% 96.81% 96.87% 96.94% 97.00%

Personnel 1222.00 1459.00 1726.00 1932.00 1875.00 2,079.00 499.00 528.00 575.83 715.97 2,318.80 2,826.19 3,167.21 3,556.35 3,993.97 4,428.14 4,840.59 5,221.02 5,550.25

% Revenue 15.15% 15.88% 16.56% 16.40% 14.76% 14.98% 14.00% 14.56% 15.06% 16.06% 14.99% 15.24% 15.49% 15.74% 15.99% 16.25% 16.50% 16.75% 17.00%

Marketing 964.00 870.00 873.00 876.00 900.00 872.00 194.00 186.00 191.16 222.88 794.05 925.57 991.47 1,063.52 1,140.26 1,206.05 1,256.76 1,291.05 1,305.94

% Revenue 11.95% 9.47% 8.38% 7.44% 7.09% 6.28% 5.44% 5.13% 5.00% 5.00% 5.13% 4.99% 4.85% 4.71% 4.57% 4.42% 4.28% 4.14% 4.00%

Professional Fess 286.00 337.00 385.00 412.00 328.00 336.00 72.00 66.00 68.82 80.24 287.06 347.45 386.74 431.40 481.38 530.38 576.24 617.83 652.97

% Revenue 3.55% 3.67% 3.69% 3.50% 2.58% 2.42% 2.02% 1.82% 1.80% 1.80% 1.86% 1.87% 1.89% 1.91% 1.93% 1.95% 1.96% 1.98% 2.00%

General and Administrative Expense 359.00 414.00 451.00 451.00 507.00 547.00 156.00 164.00 172.04 189.45 681.50 877.07 1,033.26 1,214.96 1,424.01 1,642.79 1,863.60 2,081.00 2,285.40

% Revenue 4.45% 4.51% 4.33% 3.83% 3.99% 3.94% 4.38% 4.52% 4.50% 4.25% 4.40% 4.73% 5.05% 5.38% 5.70% 6.03% 6.35% 6.68% 7.00%

Depreciation and Amortization 265.00 288.00 333.00 397.00 435.00 494.00 120.00 121.00 113.04 112.98 467.02 461.82 456.63 471.50 541.85 625.14 711.41 797.11 879.95

% of PP&E Beginning Net 22.01% 21.22% 21.61% 24.30% 25.12% 26.17% 6.36% 6.42% 6.00% 6.00% 21.95% 21.71% 21.47% 21.22% 20.98% 20.73% 20.49% 20.24% 20.00%

Litigation Provision (45.00) 7.00 4,100.00 3.00 453.00 14.00 - 1.00 - - 1.00 278.19 306.69 338.87 249.72 272.58 293.43 311.73 -

% Revenue (.56%) .08% 39.34% .03% 3.57% .10% - .03% - - .01% 1.50% 1.50% 1.50% 1.00% 1.00% 1.00% 1.00% -

Earnings Before Interest & Taxes $4,589.00 $5,456.00 $2,139.00 $7,239.00 $7,697.00 $9,064.00 $2,396.00 $2,434.00 $2,568.32 $2,979.92 $10,378.24 $12,189.36 $13,411.53 $14,764.05 $16,327.32 $17,682.41 $18,882.32 $19,898.16 $20,994.58

% Revenue 56.90% 59.38% 20.53% 61.46% 60.60% 65.30% 67.21% 67.13% 67.18% 66.85% 67.08% 65.72% 65.59% 65.35% 65.38% 64.87% 64.35% 63.83% 64.30%

Other Non-Operating Income (Expense) 121.00 232.00 39.00 27.00 37.00 -69.00 272.00 139.00 38.23 44.58 493.81 185.46 204.46 225.91 249.72 272.58 293.43 311.73 326.49

% Revenue 1.58% 2.63% .39% .24% .30% .51% 7.91% 3.97% 1.00% 1.00% 3.31% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

Interest Expense (Income) 72.00 32.00 (29.00) 9.00 10.00 0.00 29.00 132.00 132.00 132.00 425.00 528.00 528.00 528.00 528.00 528.00 528.00 528.00 528.00

% Revenue .89% .35% .28% .08% .08% - .81% 3.64% 3.45% 2.96% 2.75% 2.85% 2.58% 2.34% 2.11% 1.94% 1.80% 1.69% 1.62%

Earnings Before Taxes 4,638.00 5,656.00 2,207.00 7,257.00 7,724.00 8,995.00 2,639.00 2,441.00 2,474.55 2,892.50 10,447.05 11,846.82 13,088.00 14,461.97 16,049.04 17,426.99 18,647.75 19,681.89 20,793.07

% Revenue 57.51% 61.56% 21.18% 61.61% 60.81% 64.81% 74.03% 67.32% 64.72% 64.89% 67.52% 63.88% 64.01% 64.02% 64.27% 63.93% 63.55% 63.14% 63.69%

Less Taxes (Benefits) 1,674.00 2,010.00 65.00 2,277.00 2,286.00 2,667.00 698.00 734.00 754.74 882.21 3,068.95 3,489.39 3,865.17 4,282.21 4,764.66 5,187.33 5,565.24 5,889.22 6,237.92

Tax Rate 36.09% 35.54% 2.95% 31.38% 29.60% 29.65% 26.45% 30.07% 30.50% 30.50% 29.38% 29.45% 29.53% 29.61% 29.69% 29.77% 29.84% 29.92% 30.00%

Net Income $2,964.00 $3,646.00 $2,142.00 $4,980.00 $5,438.00 $6,328.00 $1,941.00 $1,707.00 $1,719.81 $2,010.29 $7,378.10 $8,357.43 $9,222.83 $10,179.76 $11,284.38 $12,239.65 $13,082.50 $13,792.67 $14,555.15

Net Margin 36.75% 39.68% 20.55% 42.28% 42.81% 45.59% 54.45% 47.08% 44.98% 45.10% 47.69% 45.06% 45.11% 45.06% 45.19% 44.90% 44.59% 44.25% 44.58%

Add Back: Depreciation and Amortization 265.00 288.00 333.00 397.00 435.00 494.00 120.00 121.00 113.04 112.98 467.02 461.82 456.63 471.50 541.85 625.14 711.41 797.11 879.95

Add Back: Interest Expense*(1-Tax Rate) 46.01 20.63 (28.15) 6.18 7.04 0.00 21.33 92.31 91.74 91.74 297.12 372.48 372.07 371.66 371.25 370.84 370.42 370.01 369.60

Operating Cash Flow $3,275.01 $3,954.63 $2,446.85 $5,383.18 $5,880.04 $6,822.00 $2,082.33 $1,920.31 $1,924.59 $2,215.01 $8,142.24 $9,191.74 $10,051.53 $11,022.91 $12,197.48 $13,235.63 $14,164.34 $14,959.79 $15,804.70

% Revenue 40.61% 43.04% 23.48% 45.71% 46.29% 49.15% 58.41% 52.96% 50.34% 49.69% 52.63% 49.56% 49.16% 48.79% 48.84% 48.56% 48.27% 47.99% 48.41%

Current Assets 1,918.00 2,004.00 3,714.00 2,652.00 3,153.00 2,782.00 2,026.00 2,295.00 2,240.04 2,359.86 2,359.86 2,792.78 3,080.03 3,404.38 3,764.48 4,110.51 4,426.41 4,704.23 4,928.60

% Revenue 23.78% 21.81% 35.64% 22.52% 24.82% 20.04% 56.83% 63.29% 58.59% 52.94% 15.25% 15.06% 15.06% 15.07% 15.07% 15.08% 15.09% 15.09% 15.10%

Current Liabilities 2,545.00 2,457.00 7,073.00 3,405.00 4,972.00 4,276.00 3,794.00 4,075.00 4,405.79 4,642.18 4,642.18 5,461.64 5,911.43 6,410.30 6,951.72 7,441.62 7,853.08 8,175.58 8,387.13

% Revenue 31.56% 26.74% 67.87% 28.91% 39.14% 30.81% 106.42% 112.38% 115.24% 104.14% 30.00% 29.45% 28.91% 28.37% 27.84% 27.30% 26.76% 26.23% 25.69%

Net Working Capital ($627.00) ($453.00) ($3,359.00) ($753.00) ($1,819.00) ($1,494.00) ($1,768.00) ($1,780.00) ($2,165.75) ($2,282.32) ($2,282.32) ($2,668.86) ($2,831.41) ($3,005.92) ($3,187.23) ($3,331.11) ($3,426.67) ($3,471.35) ($3,458.53)

% Revenue (7.77%) (4.93%) (32.23%) (6.39%) (14.32%) (10.76%) (49.59%) (49.09%) (56.65%) (51.20%) (14.75%) (14.39%) (13.85%) (13.31%) (12.76%) (12.22%) (11.68%) (11.14%) (10.59%)

Change in Working Capital $0.00 $174.00 ($2,906.00) $2,606.00 ($1,066.00) $325.00 ($274.00) ($12.00) ($385.75) ($116.57) ($788.32) ($386.54) ($162.55) ($174.51) ($181.32) ($143.87) ($95.56) ($44.68) $12.82

Capital Expenditures 241.00 353.00 376.00 471.00 553.00 414.00 126.00 124.00 114.70 133.73 498.43 556.38 817.85 903.66 998.89 1,090.33 1,173.70 1,558.66 1,958.91

% Revenue 2.99% 3.84% 3.61% 4.00% 4.35% 2.98% 3.53% 3.42% 3.00% 3.00% 3.22% 3.00% 4.00% 4.00% 4.00% 4.00% 4.00% 5.00% 6.00%

Acquisitions 1,805.00 268.00 3.00 - 149.00 93.00 - 14.00 - 13,811.88 13,825.88 - - 1,268.28 - - - - -

% Revenue 22.38% 2.92% .03% - 1.17% .67% - .39% - 309.84% 89.36% - - - - - - - -

Unlevered Free Cash Flow $1,229.01 $3,159.63 $4,973.85 $2,306.18 $6,244.04 $5,990.00 $2,230.33 $1,794.31 $2,195.65 ($11,614.03) ($5,393.75) $9,021.90 $9,396.22 $9,025.48 $11,379.90 $12,289.17 $13,086.20 $13,445.81 $13,832.96

Discounted Free Cash Flow 2,149.74$ (11,133.48)$ 7,947.70$ 7,606.64$ 6,714.38$ 7,779.82$ 7,720.58$ 7,555.03$ 7,133.55$ 6,744.19$

Discount Period 0.25 0.50 1.50 2.50 3.50 4.50 5.50 6.50 7.50 8.50

Reinvestment Rate 58.09% 10.16% -139.59% 53.58% -15.23% 6.06% -26.56% -5.42% -23.01% 660.78% 173.59% -4.92% 0.58% 13.15% 0.87% 1.05% 1.21% 3.57% 5.87%

EBITDA $4,854.00 $5,744.00 $2,472.00 $7,636.00 $8,132.00 $9,558.00 $10,845.26 $12,651.18 $13,868.16 $15,235.55 $16,869.17 $18,307.54 $19,593.73 $20,695.26 $21,874.53

EBITDA Margin 60.19% 62.52% 23.72% 64.83% 64.02% 68.86% 70.10% 68.22% 67.83% 67.44% 67.55% 67.16% 66.78% 66.39% 67.00%

EBITDA Growth 18.34% (56.96%) 208.90% 6.50% 17.54% 13.47% 16.65% 9.62% 9.86% 10.72% 8.53% 7.03% 5.62% 5.70%

Appendix 2 – Discounted Cash Flows Valuation

UOIG 17


Revenue Model Segment- Visa Q1 Q2 Q3 Q4

($ in Millions) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015A 3/31/2016A 6/30/2016E 9/31/2016E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Service Revenues 3497.00 4261.00 4872.00 5352.00 5797.00 6302.00 1645.00 1699.00 1766.96 1837.64 6948.60 7691.76 8539.50 9508.53 10649.55 11778.40 12862.01 13865.25 14558.51

% Growth 10.18% 21.85% 14.34% 9.85% 8.31% 8.71% 6.96% 7.74% 4.00% 4.00% 10.26% 10.70% 11.02% 11.35% 12.00% 10.60% 9.20% 7.80% 5.00%

% of Total Revenue 43.36% 46.38% 46.75% 45.44% 45.64% 45.40% 46.14% 46.86% 46.22% 46.05% 46.31% 46.54% 46.80% 47.14% 47.73% 48.30% 48.86% 49.40% 49.44%

Data Processing Revenues 3125.00 3478.00 3975.00 4642.00 5167.00 5552.00 1479.00 1473.00 1576.11 1686.44 6214.55 6910.58 7633.90 8376.93 9130.86 9861.33 10551.62 11184.72 11743.95

% Growth 28.60% 11.30% 14.29% 16.78% 11.31% 7.45% 6.94% 9.93% 7.00% 7.00% 11.93% 11.20% 10.47% 9.73% 9.00% 8.00% 7.00% 6.00% 5.00%

% of Total Revenue 38.75% 37.85% 38.14% 39.41% 40.68% 40.00% 41.49% 40.62% 41.22% 42.26% 41.42% 41.81% 41.84% 41.53% 40.92% 40.44% 40.08% 39.85% 39.88%

International Transaction Revenues 2290.00 2674.00 3025.00 3389.00 3560.00 4064.00 1031.00 1045.00 1086.80 1108.54 4271.34 4613.04 5120.48 5734.93 6423.13 7065.44 7630.67 8088.52 8492.94

% Growth 19.52% 16.77% 13.13% 12.03% 5.05% 14.16% 6.29% 8.40% 4.00% 2.00% 5.10% 8.00% 11.00% 12.00% 12.00% 10.00% 8.00% 6.00% 5.00%

% of Total Revenue 28.39% 29.10% 29.03% 28.77% 28.03% 29.28% 28.92% 28.82% 28.43% 27.78% 28.47% 27.91% 28.06% 28.43% 28.79% 28.97% 28.99% 28.82% 28.84%

Other Revenues 713.00 655.00 704.00 716.00 770.00 823.00 198.00 198.00 198.00 198.00 792.00 792.00 793.98 797.95 803.93 811.97 822.12 834.46 849.06

% Growth 14.08% (8.13%) 7.48% 1.70% 7.54% 6.88% (2.94%) (2.94%) 0.00% 0.00% (3.77%) 0.00% .25% .50% .75% 1.00% 1.25% 1.50% 1.75%

% of Total Revenue 8.84% 7.13% 6.76% 6.08% 6.06% 5.93% 5.55% 5.46% 5.18% 4.96% 5.28% 4.79% 4.35% 3.96% 3.60% 3.33% 3.12% 2.97% 2.88%

Client Incentives (1,560.00) (1,880.00) (2,155.00) (2,321.00) (2,592.00) (2,861.00) (788.00) (789.00) (804.65) (839.90) (3,221.56) (3,478.71) (3,840.44) (4,245.65) (4,695.82) (5,132.53) (5,541.03) (5,907.39) (6,196.85)

% Growth 26.42% 20.51% 14.63% 7.70% 11.68% 10.38% 10.52% 16.72% 20.10% 4.73% 12.60% 7.98% 10.40% 10.55% 10.60% 9.30% 7.96% 6.61% 4.90%

% of Total Revenue 19.34% 20.46% 20.68% 19.71% 20.41% 20.61% 22.10% 21.76% 21.05% 21.05% 21.47% 21.05% 21.05% 21.05% 21.05% 21.05% 21.05% 21.05% 21.04%

Total Revenue $8,065.00 $9,188.00 $10,421.00 $11,778.00 $12,702.00 $13,880.00 $3,565.00 $3,626.00 $3,823.22 $3,990.71 $15,004.92 $16,528.68 $18,247.41 $20,172.70 $22,311.65 $24,384.61 $26,325.40 $28,065.55 $29,447.62

% Growth 16.70% 13.92% 13.42% 13.02% 7.85% 9.27% 5.41% 6.37% 8.68% 11.75% 8.10% 10.16% 10.40% 10.55% 10.60% 9.29% 7.96% 6.61% 4.92%

Revenue Model - Visa Europe Q1 Q2 Q3 Q4

($ in Millions, Based on $/ € Exchange) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015 3/31/2016 6/30/2016 9/31/2016 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Revenue 1168.17 1393.27 1421.20 1593.95 2463.86 2562.92 2727.69 2911.51 3119.90 3358.21 3609.48 3822.33 3956.52 4028.25 4093.87

% Growth -- -- -- -- -- 4.02% 6.43% 6.74% 7.16% 7.64% 7.48% 5.90% 3.51% 1.81% 1.63%

% of Total Revenue 121.85% -- -- -- 142.77% 146.95% 146.03% 144.32% 141.88% 138.84% 135.66% 133.02% 131.13% 129.62% 127.90%

Client Incentives (209.49) 0.00 0.00 0.00 (738.05) (818.85) (859.79) (894.18) (921.01) (939.43) (948.82) (948.82) (939.33) (920.54) (892.93)

% Growth -- -- -- -- N/A 10.95% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% (1.00%) (2.00%) (3.00%)

% of Total Revenue 21.85% -- -- -- 42.77% 46.95% 46.03% 44.32% 41.88% 38.84% 35.66% 33.02% 31.13% 29.62% 27.90%

Total Revenue $958.67 $1,393.27 $1,421.20 $1,593.95 $1,725.81 $1,744.07 $1,867.90 $2,017.33 $2,198.89 $2,418.78 $2,660.66 $2,873.52 $3,017.19 $3,107.71 $3,200.94

% Growth N/A 45.33% 2.00% 12.16% 8.27% 1.06% 5.00% 8.00% 9.00% 10.00% 10.00% 8.00% 5.00% 3.00% 3.00%

Revenue Model by Segment (Visa)

Revenue Model by Segment (Visa Europe)

Appendix 3 – Revenue Model

UOIG 18


Revenue Model Driver - Service Revenues Q1 Q2 Q3 Q4

(Payments Volume $ in Billions) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015 3/31/2016 6/30/2016 9/31/2016 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Asia Pacific - Payments Volume 801.00 991.00 1112.00 1227.00 1356.00 1437.00 387.00 378.00 389.40 396.89 1551.29 1678.63 1820.73 1979.51 2157.20 2356.36 2579.94 2831.33 3114.46

% Growth N/A 23.72% 12.21% 10.34% 10.51% 5.97% 7.80% 10.20% 6.98% 6.98% 7.95% 8.21% 8.46% 8.72% 8.98% 9.23% 9.49% 9.74% 10.00%

% of Volume 25.45% 26.99% 28.24% 28.58% 28.97% 29.14% 29.66% 30.14% 29.28% 29.58% 29.66% 30.17% 30.74% 31.41% 32.21% 33.16% 34.30% 35.64% 37.19%

Canada - Payments Volume 187.00 211.00 219.00 232.00 235.00 222.00 55.00 46.00 53.23 50.43 204.66 191.19 180.95 173.47 168.43 165.61 164.86 166.13 169.46

% Growth N/A 12.83% 3.79% 5.94% 1.29% (5.53%) (11.29%) (6.12%) (6.61%) (6.61%) (7.81%) (6.58%) (5.36%) (4.13%) (2.90%) (1.68%) (.45%) .77% 2.00%

% of Volume 5.94% 5.75% 5.56% 5.40% 5.02% 4.50% 4.21% 3.67% 4.00% 3.76% 3.91% 3.44% 3.06% 2.75% 2.51% 2.33% 2.19% 2.09% 2.02%

CEMEA - Payments Volume 97.00 132.00 171.00 213.00 253.00 241.00 60.00 57.00 58.88 58.88 234.75 230.02 226.70 224.72 224.06 224.68 226.60 229.83 234.43

% Growth N/A 36.08% 29.55% 24.56% 18.78% (4.74%) (7.69%) 5.56% (3.48%) (3.48%) (2.59%) (2.02%) (1.44%) (.87%) (.30%) .28% .85% 1.43% 2.00%

% of Volume 3.08% 3.59% 4.34% 4.96% 5.41% 4.89% 4.60% 4.55% 4.43% 4.39% 4.49% 4.13% 3.83% 3.57% 3.35% 3.16% 3.01% 2.89% 2.80%

LAC - Payments Volume 253.00 333.00 365.00 401.00 411.00 376.00 89.00 79.00 79.01 75.46 322.47 283.11 254.29 233.57 219.28 210.32 205.98 205.92 210.04

% Growth N/A 31.62% 9.61% 9.86% 2.49% (8.52%) (18.35%) (15.05%) (11.22%) (11.22%) (14.24%) (12.21%) (10.18%) (8.15%) (6.12%) (4.09%) (2.06%) (.03%) 2.00%

% of Volume 8.04% 9.07% 9.27% 9.34% 8.78% 7.63% 6.82% 6.30% 5.94% 5.62% 6.17% 5.09% 4.29% 3.71% 3.27% 2.96% 2.74% 2.59% 2.51%

US - Payments Volume 1809.00 2005.00 2070.00 2220.00 2425.00 2655.00 714.00 694.00 749.18 760.15 2917.34 3180.50 3440.05 3691.19 3928.91 4148.16 4343.96 4511.64 4646.99

% Growth N/A 10.83% 3.24% 7.25% 9.23% 9.48% 9.68% 10.51% 9.69% 9.69% 9.88% 9.02% 8.16% 7.30% 6.44% 5.58% 4.72% 3.86% 3.00%

% of Volume 57.48% 54.60% 52.58% 51.71% 51.82% 53.84% 54.71% 55.34% 56.34% 56.65% 55.78% 57.17% 58.08% 58.57% 58.66% 58.38% 57.76% 56.79% 55.48%

Total Payments Volume 3147.00 3672.00 3937.00 4293.00 4680.00 4931.00 1305.00 1254.00 1329.70 1341.81 5230.51 5563.44 5922.71 6302.46 6697.89 7105.13 7521.34 7944.86 8375.38

% Growth N/A 16.68% 7.22% 9.04% 9.01% 5.36% 4.74% 7.46% 6.04% 6.16% 6.07% 6.37% 6.46% 6.41% 6.27% 6.08% 5.86% 5.63% 5.42%

Revenue Model Driver - Data Processing Revenues Q1 Q2 Q3 Q4

Payments Transactions in Millions 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015 3/31/2016 6/30/2016 9/31/2016 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Asia Pacific 10262.00 11021.00 11950.00 13291.00 15071.00 17336.00 4900.00 4749.00 5075.61 5387.50 20112.11 23131.31 26372.05 29802.65 33380.98 37054.59 40761.30 44430.51 47984.95

% Growth N/A 7.40% 8.43% 11.22% 13.39% 15.03% 17.06% 16.06% 15.51% 15.51% 16.01% 15.01% 14.01% 13.01% 12.01% 11.01% 10.00% 9.00% 8.00%

% of Total Transactions 18.26% 17.58% 18.06% 18.36% 18.87% 19.44% 19.91% 19.82% 19.88% 20.26% 19.97% 20.48% 20.97% 21.46% 21.97% 22.50% 23.09% 23.74% 24.46%

Canada 1701.00 1849.00 1998.00 2220.00 2434.00 2651.00 723.00 656.00 738.36 760.11 2877.47 3103.36 3325.47 3540.44 3744.78 3934.96 4107.54 4259.23 4387.00

% Growth N/A 8.70% 8.06% 11.11% 9.64% 8.92% 7.75% 8.97% 8.74% 8.74% 8.54% 7.85% 7.16% 6.46% 5.77% 5.08% 4.39% 3.69% 3.00%


CEMEA 1522.00 2058.00 2861.00 4017.00 5358.00 6937.00 2099.00 2186.00 2327.67 2510.44 9123.10 11672.96 14519.45 17542.55 20569.83 23386.39 25755.06 27445.67 28269.04

% Growth N/A 35.22% 39.02% 40.41% 33.38% 29.47% 29.89% 35.36% 30.55% 30.55% 31.51% 27.95% 24.39% 20.82% 17.26% 13.69% 10.13% 6.56% 3.00%


LAC 6106.00 7295.00 8320.00 9265.00 9774.00 10529.00 2914.00 2795.00 2808.74 2931.05 11448.79 12388.31 13339.34 14292.75 15238.62 16166.41 17065.09 17923.38 18729.93

% Growth N/A 19.47% 14.05% 11.36% 5.49% 7.72% 8.05% 10.52% 8.24% 8.24% 8.74% 8.21% 7.68% 7.15% 6.62% 6.09% 5.56% 5.03% 4.50%


US 36601.00 40466.00 41050.00 43616.00 47250.00 51706.00 13970.00 13570.00 14577.78 15007.74 57125.52 62650.26 68201.73 73692.57 79028.44 84110.38 88837.68 93110.93 96835.37

% Growth N/A 10.56% 1.44% 6.25% 8.33% 9.43% 10.92% 11.17% 9.96% 9.96% 10.48% 9.67% 8.86% 8.05% 7.24% 6.43% 5.62% 4.81% 4.00%


Total Transactions 56192.00 62689.00 66179.00 72409.00 79887.00 89159.00 24606.00 23956.00 25528.17 26596.83 100686.99 112946.20 125758.04 138870.96 151962.66 164652.73 176526.67 187169.72 196206.29

% Growth N/A 11.56% 5.57% 9.41% 10.33% 11.61% 13.05% 13.84% 12.42% 12.50% 12.93% 12.18% 11.34% 10.43% 9.43% 8.35% 7.21% 6.03% 4.83%

Revenue Model Driver - International Transactions Q1 Q2 Q3 Q4

(Cross Border Volume) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015 3/31/2016 6/30/2016 9/31/2016 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Nominal % Growth 16.00% 18.00% 11.00% 10.00% 8.00% 0.00% (4.00%) 0.00% 2.00% 4.00% 6.00% 10.00% 11.00% 12.00% 10.00% 8.00% 8.00% 8.00% 5.00%

Revenue Model Drivers for Segments

(Illustrative)

Appendix 3 – Revenue Model Continued

UOIG 19


Working Capital Model Q1 Q2 Q3 Q4

($ in millions) 2010A 2011A 2012A 2013A 2014A 2015A 12/31/2015A 3/31/2016A 6/30/2016E 9/31/2016E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Total Revenue $8,065.00 $9,188.00 $10,421.00 $11,778.00 $12,702.00 $13,880.00 $3,565.00 $3,626.00 $3,823.22 $3,990.71 $15,471.90 $18,546.02 $20,446.31 $22,591.48 $24,972.31 $27,258.13 $29,342.59 $31,173.26 $32,648.55

Current Assets

Settlements Recievable 402.00 412.00 454.00 799.00 786.00 408.00 443.00 414.00 452.55 494.07 494.07 575.36 615.72 659.78 706.60 746.49 776.89 797.01 805.03

Days Sales Outstanding S/R 18.19 16.37 15.95 24.76 22.59 10.73 11.18 10.39 10.89 11.39 11.66 11.32 10.99 10.66 10.33 10.00 9.66 9.33 9.00

% of Revenue 4.98% 4.48% 4.36% 6.78% 6.19% 2.94% 12.43% 11.42% 11.84% 12.38% 3.19% 3.10% 3.01% 2.92% 2.83% 2.74% 2.65% 2.56% 2.47%

Accounts Receivable 476.00 560.00 723.00 761.00 822.00 847.00 922.00 944.00 969.54 1012.02 1012.02 1185.45 1306.92 1444.04 1596.22 1742.33 1875.57 1992.58 2086.88

Days Sales Outstanding A/R 21.54 22.25 25.39 23.58 23.62 22.27 23.28 23.69 23.33 23.33 23.87 23.33 23.33 23.33 23.33 23.33 23.33 23.33 23.33

% of Revenue 5.90% 6.09% 6.94% 6.46% 6.47% 6.10% 25.86% 26.03% 25.36% 25.36% 6.54% 6.39% 6.39% 6.39% 6.39% 6.39% 6.39% 6.39% 6.39%

Current Client Incentives 175.00 278.00 209.00 282.00 210.00 303.00 414.00 291.00 345.06 360.18 360.18 521.12 594.20 678.29 773.81 870.88 965.73 1055.99 1137.40

% of Revenue 2.17% 3.03% 2.01% 2.39% 1.65% 2.18% 11.61% 8.03% 9.03% 9.03% 2.33% 2.81% 2.91% 3.00% 3.10% 3.19% 3.29% 3.39% 3.48%

Prepaid Expenses and Other 242.00 265.00 301.00 329.00 307.00 353.00 247.00 646.00 472.88 493.60 493.60 510.84 563.18 622.27 687.85 750.81 808.23 858.65 899.29

Days Prepaid Expense Outstanding 10.95 10.53 10.57 10.20 8.82 9.28 6.24 16.21 11.38 11.38 11.64 10.05 10.05 10.05 10.05 10.05 10.05 10.05 10.05

% of Revenue 3.00% 2.88% 2.89% 2.79% 2.42% 2.54% 6.93% 17.82% 12.37% 12.37% 3.19% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%

Deferred Tax Assets 623.00 489.00 2027.00 481.00 1028.00 871.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

% of Revenue 7.72% 5.32% 19.45% 4.08% 8.09% 6.28% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Total Current Assets $1,918.00 $2,004.00 $3,714.00 $2,652.00 $3,153.00 $2,782.00 $2,026.00 $2,295.00 $2,240.04 $2,359.86 $2,359.86 $2,792.78 $3,080.03 $3,404.38 $3,764.48 $4,110.51 $4,426.41 $4,704.23 $4,928.60

% of Revenue 23.78% 21.81% 35.64% 22.52% 24.82% 20.04% 56.83% 63.29% 58.59% 59.13% 15.25% 15.06% 15.06% 15.07% 15.07% 15.08% 15.09% 15.09% 15.10%

Long Term Assets

Net PP&E Beginning 1204.00 1357.00 1541.00 1634.00 1732.00 1888.00 1888.00 1884.00 1883.00 1884.66 2127.27 2127.27 2221.83 2583.05 3015.21 3472.26 3937.45 4399.74 5161.29

Capital Expenditures 241.00 353.00 376.00 471.00 553.00 414.00 126.00 124.00 114.70 133.73 498.43 556.38 817.85 903.66 998.89 1090.33 1173.70 1558.66 1958.91

Acquisitions 1805.00 268.00 3.00 0.00 149.00 93.00 0.00 14.00 0.00 13811.88 13825.88 0.00 0.00 1268.28 0.00 0.00 0.00 0.00 0.00

Depreciation and Amortization 265.00 288.00 333.00 397.00 435.00 494.00 120.00 121.00 113.04 194.94 548.98 461.82 456.63 471.50 541.85 625.14 711.41 797.11 879.95

Net PP&E Ending 1357.00 1541.00 1634.00 1732.00 1892.00 1888.00 1884.00 1883.00 1884.66 2127.27 2127.27 2221.83 2583.05 3015.21 3472.26 3937.45 4399.74 5161.29 6240.26

Total Current Assets & Net PP&E $3,275.00 $3,545.00 $5,348.00 $4,384.00 $5,045.00 $4,670.00 $3,910.00 $4,178.00 $4,124.69 $4,487.13 $4,487.13 $5,014.61 $5,663.08 $6,419.59 $7,236.74 $8,047.96 $8,826.15 $9,865.52 $11,168.86

% of Revenue 40.61% 38.58% 51.32% 37.22% 39.72% 33.65% 109.68% 115.22% 107.89% 112.44% 29.00% 27.04% 27.70% 28.42% 28.98% 29.52% 30.08% 31.65% 34.21%

Current Liabilities

Accounts Payable 137.00 169.00 152.00 184.00 147.00 127.00 118.00 90.00 114.92 119.95 119.95 140.51 154.90 171.16 189.19 206.51 222.30 236.17 247.35

Days Sales Outstanding 6.20 6.71 5.34 5.70 4.22 3.34 2.98 2.26 2.77 2.77 2.83 2.77 2.77 2.77 2.77 2.77 2.77 2.77 2.77

% of Revenue 1.70% 1.84% 1.46% 1.56% 1.16% .91% 3.31% 2.48% 3.01% 3.01% .78% .76% .76% .76% .76% .76% .76% .76% .76%

Settlements Payable 406.00 449.00 719.00 1225.00 1332.00 780.00 744.00 723.00 795.59 873.83 873.83 1030.84 1118.16 1215.24 1320.95 1417.46 1499.58 1565.22 1610.07

Days Sales Outstanding 18.37 17.84 25.25 37.96 38.28 20.51 18.78 18.14 19.14 20.14 20.61 20.29 19.96 19.63 19.31 18.98 18.65 18.33 18.00

% of Revenue 5.03% 4.89% 6.90% 10.40% 10.49% 5.62% 20.87% 19.94% 20.81% 21.90% 5.65% 5.56% 5.47% 5.38% 5.29% 5.20% 5.11% 5.02% 4.93%

Accrued Compensation and Benefits 370.00 387.00 460.00 523.00 450.00 503.00 317.00 376.00 412.28 430.34 430.34 520.91 579.87 646.88 721.88 795.40 864.24 926.68 979.46

% of Revenue 4.59% 4.21% 4.41% 4.44% 3.54% 3.62% 8.89% 10.37% 10.78% 10.78% 2.78% 2.81% 2.84% 2.86% 2.89% 2.92% 2.95% 2.97% 3.00%

Cient Incentives 418.00 528.00 830.00 919.00 1036.00 1049.00 1116.00 1132.00 1270.03 1325.67 1325.67 1645.44 1876.19 2141.71 2443.32 2749.83 3049.30 3334.30 3591.34

% of Revenue 5.18% 5.75% 7.96% 7.80% 8.16% 7.56% 31.30% 31.22% 33.22% 33.22% 8.57% 8.87% 9.18% 9.48% 9.78% 10.09% 10.39% 10.70% 11.00%

Current Accrued Liabilities 583.00 499.00 526.00 549.00 551.00 793.00 487.00 741.00 744.87 777.50 777.50 931.40 1026.19 1133.14 1251.77 1365.49 1468.98 1559.65 1632.43

% of Revenue 7.23% 5.43% 5.05% 4.66% 4.34% 5.71% 13.66% 20.44% 19.48% 19.48% 5.03% 5.02% 5.02% 5.02% 5.01% 5.01% 5.01% 5.00% 5.00%

Current Accrued Litigation 631.00 425.00 4386.00 5.00 1456.00 1024.00 1012.00 1013.00 1068.10 1114.89 1114.89 1192.54 1156.12 1102.17 1024.60 906.94 748.67 553.56 326.49

% of Revenue 7.82% 4.63% 42.09% .04% 11.46% 7.38% 28.39% 27.94% 27.94% 27.94% 7.21% 6.43% 5.65% 4.88% 4.10% 3.33% 2.55% 1.78% 1.00%

Total Current Liabilities $2,545.00 $2,457.00 $7,073.00 $3,405.00 $4,972.00 $4,276.00 $3,794.00 $4,075.00 $4,405.79 $4,642.18 $4,642.18 $5,461.64 $5,911.43 $6,410.30 $6,951.72 $7,441.62 $7,853.08 $8,175.58 $8,387.13

% of Revenue 31.56% 26.74% 67.87% 28.91% 39.14% 30.81% 106.42% 112.38% 115.24% 116.32% 30.00% 29.45% 28.91% 28.37% 27.84% 27.30% 26.76% 26.23% 25.69%

Appendix 4 – Working Capital Model

UOIG 20


Discounted Free Cash Flow Assumptions Considerations Implied Price

Tax Rate 30.00% Terminal Growth Rate 0.57% Terminal Growth Rate

Risk Free Rate 1.93% Terminal Value 153,297 Avg. Industry Debt / Equity 28.67%

Beta 1.15 PV of Terminal Value 74,739 Avg. Industry Tax Rate 26.00%

Market Risk Premium 6.45% Sum of PV Free Cash Flows 50,218 Current Reinvestment Rate 6.06%

% Equity 92.38% Firm Value 124,957 Reinvestment Rate in Year 2024E 5.87%

% Debt 7.62% Total Debt 15,876 Implied Return on Capital in Perpetuity 9.64%

Cost of Debt 2.94% Cash & Cash Equivalents 15,943 Terminal Value as a % of Total 59.8%

CAPM 9.38% Operating Cash Estimate 589 Implied 2015A EBITDA Multiple 13.1x

WACC 8.82% Non-Operating Cash 15,354 Implied Multiple in Year 2024E 3.4x

Terminal Risk Free Rate 2.82% Market Capitalization 124,435 Free Cash Flow Growth Rate in Year 2024E 3%

Terminal CAPM 10.27% Fully Diluted Shares 2,002 Termianl Year CAPEX % of Revenue 6%

Terminal WACC 9.64% Implied Price 62.16

Current Price 77.42

Overvalued (19.72%)

Method Implied Price Weight

Discounted Cash Flow 62.16 80% Implied Price

Forward Comparables 82.70 20% Terminal Growth Rate

Implied Price 66.26

Current Price 77.42

Overvalued (14.41%)

Appendix 5 – Discounted Cash Flows Valuation Assumptions

UOIG 21


Appendix 6 –Sensitivity Analysis



-0.5% 0.0% 0.5% 1.0% 1.5% -0.5% 0.0% 0.5% 1.0% 1.5%

0.89 73.62 76.81 80.42 84.55 89.34 0.89 (4.20%) (0.06%) 4.64% 10.03% 16.25%

0.99 67.70 70.35 73.33 76.71 80.58 0.99 (11.90%) (8.46%) (4.58%) (0.18%) 4.85%

1.09 62.54 64.76 67.25 70.05 73.21 1.09 (18.62%) (15.73%) (12.49%) (8.85%) (4.74%)

1.19 58.00 59.89 61.98 64.31 66.94 1.19 (24.53%) (22.07%) (19.35%) (16.31%) (12.90%)

1.29 53.98 55.59 57.37 59.34 61.53 1.29 (29.76%) (27.66%) (25.35%) (22.79%) (19.93%)



-0.5% 0.0% 0.5% 1.0% 1.5% -0.5% 0.0% 0.5% 1.0% 1.5%

0.28 18.43 18.95 19.54 20.20 20.94 0.12 (37.97%) (35.86%) (33.50%) (30.84%) (27.84%)

0.18 32.73 33.78 34.94 36.25 37.74 0.10 (29.27%) (26.80%) (24.05%) (20.96%) (17.46%)

0.08 62.19 64.40 66.87 69.64 72.79 0.08 (19.08%) (16.20%) (12.99%) (9.38%) (5.29%)

0.18 32.73 33.78 34.94 36.25 37.74 0.06 (7.11%) (3.74%) 0.03% 4.26% 9.05%

0.28 18.43 18.95 19.54 20.20 20.94 0.04 7.01% 10.97% 15.40% 20.37% 26.00%



-0.5% 0.0% 0.5% 1.0% 1.5% -0.5% 0.0% 0.5% 1.0% 1.5%

2097.00 59.55 61.67 64.04 66.70 69.71 2097.00 -22.51% -19.75% -16.67% -13.21% -9.29%

2047.00 61.00 63.18 65.60 68.32 71.41 2047.00 -20.62% -17.79% -14.64% -11.09% -7.08%

1997.00 62.53 64.76 67.24 70.04 73.20 1997.00 -18.63% -15.74% -12.50% -8.87% -4.75%

1947.00 64.14 66.42 68.97 71.83 75.08 1947.00 -16.54% -13.57% -10.26% -6.53% -2.31%

1897.00 65.83 68.17 70.79 73.73 77.06 1897.00 -14.34% -11.29% -7.89% -4.06% 0.27%



-0.5% 0.0% 0.5% 1.0% 1.5% -0.5% 0.0% 0.5% 1.0% 1.5%

0.45 62.80 65.05 67.56 70.38 73.57 0.45 -18.28% -15.36% -12.09% -8.42% -4.26%

0.35 62.62 64.85 67.34 70.15 73.32 0.35 -18.52% -15.62% -12.37% -8.72% -4.59%

0.30 62.53 64.75 67.24 70.03 73.19 0.30 -18.64% -15.74% -12.51% -8.87% -4.76%

0.25 62.44 64.65 67.13 69.91 73.07 0.25 -18.76% -15.87% -12.65% -9.02% -4.92%

0.35 62.62 64.85 67.34 70.15 73.32 0.35 -18.52% -15.62% -12.37% -8.72% -4.59%

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UOIG 22


Appendix 8 – Sources

Visa SEC Filings

FactSet

FinViz

Visa Investor Relations

IBISWorld

Visa Earnings Calls

S&P Capital IQ

Visa Press Releases

Visa Investor Presentations

CreditCard Hub

ECB Online

NASDAQ

University of Oregon Presentation Materials

Documents

VISA Report - Revised