Visa IPO Brings Value, For Now

Such laws may already be on the way. As the New York Times recently noted, "In both the Senate and the House, bills have been introduced to eliminate some of the worst of the fee practices, as well as the ability of credit card issuers to, for instance, impose retroactive interest rate charges."

4) Visa will be volatile. That's good or bad depending on your situation, but if you're an individual investor who likes steady gains, you might not like the bumpy ride.

The good news is that the volatility is likely to be on the upside. Underwriters priced the deal at a value attractive compared to that of rival Mastercard: Visa's $37.6 billion valuation at the offering is only 7.7 times 2007 revenue, a bit higher than Mastercard's current ratio of 6.8.

But now look at the profit level. Visa posted a $861 million loss last year, but excluding the $2.7 billion litigation provision it had a $1.8 billion profit -- the IPO valuation is 21 times that figure. Assuming Visa's projection of 20% earnings growth, the IPO is 17 times estimated 2008 earnings. Mastercard is 37 times 2007 earnings and 28 times 2008 earnings.

Visa's post-offering float of 447 million shares will be several times larger than Mastercard's. That should absorb some speculative enthusiasm, but it could also lead to smaller percentage gains and lead some investors to conclude that Visa is underperforming its chief rival.

Again, this is certainly not bad. But it's something to watch. The volatility could swing to the negative side at any moment.

5) Revenue growth will slow. According to projections in Visa's own prospectus, its core market will see slower growth in the next several years.

Global purchases through credit and debit cards grew 14% between 2000 and 2006, and are expected by the Nilson Report to slow to 11% compound annual growth rates through 2012.

There's certainly less room for growth in its home market, where growth will slow to 8% through 2012. Are there consumers with good credit in the U.S. who want a Visa card but don't have one? Probably, but not that many.

Visa has proven adept at finding new areas of revenue growth -- debit cards are a good example. Its dominating share of online purchases will help. But new growth may be harder to find. A focus on affluent customers sounds nice, but could expose it more to an economic recession.