Visa shares jump after record $17.9 billion IPO

updated 6:58 p.m. ET March 19, 2008

SAN FRANCISCO - Catapulted by the biggest IPO in U.S. history, Visa Inc. shares soared 28 percent in their stock market debut Wednesday as investors bet an accelerating shift to electronic payments will enrich the world’s largest processor of credit and debit cards.

After being priced above expectations at $44 per share in an initial public offering that raised nearly $18 billion, Visa shares finished at $56.50 on the New York Stock Exchange Wednesday. The run-up gives the San Francisco-based company a market value of about $45 billion.

“This is an exciting and historic day for Visa,” said Chairman Joseph Saunders, who received a $10.2 million bonus last year for laying the IPO groundwork.

Investors believe Visa is in a lucrative position as more people rely on its electronic network to make payments instead of using cash and checks. The company is expected to milk the phenomenon to become an even bigger cash cow than it already is.

Visa generated $5.2 billion in annual revenue last year as it handled more than more than 44 billion transactions totaling more than $3.2 trillion. The volume puts Visa far ahead of its main rival MasterCard Inc., whose own shares have more than quintupled from their May 2006 IPO price of $39.

Making Visa even more alluring to investors, the company is well-insulated from the credit problems that have scarred many of the lenders that issue the cards bearing its brand.

Unlike those lenders, Visa doesn’t carry any consumer debt on its books. It depends on transaction fees, which have been steadily rising for years, including the past two U.S. recessions in 1991 and 2001.

Since the last recession, Visa has enticed consumers to use its credit and debit cards more frequently to pay for staples like groceries, gas and even utility bills. Visa estimates about 42 percent of its transactions fall into this “nondiscretionary” category, up from 27 percent in 2000.

“Visa enjoys one of the widest economic moats that a company can desire,” Morningstar analyst Michael Kon wrote in a Wednesday research note.

Reflecting management’s confidence, Visa anticipates annual earnings growth of at least 20 percent for at least the next two years. The company got off to a fast start in its fiscal first quarter ending in December with a $424 million profit, up 70 percent from the previous year.

Visa overcame turbulent market conditions to shatter the previous U.S. record IPO of $10.6 billion raised by AT&T Wireless eight years ago.

“To sell 400 million shares at a time like this is Herculean,” said David Menlow, president of IPOfinancial.com.

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