Visa IPO Charges Ahead

Updated from 3:12 p.m. EDT

V is Victory -- or Visa ( V).

Shares of the San Francisco-based credit card payments processor, trading under the "V" symbol on the New York Stock Exchange, surged well into the double digits on its first day of trading Wednesday. The stock opened at $59.50 a share -- 35% above where shares were initially priced, according to Bloomberg. Shares ranged from $55 to as high as $69 a share throughout the day. The stock closed at $56.50.

Nearly 177 million shares of Visa traded hands on Wednesday.

Cramer: How to Make Money Off Visa IPO

"This is an exciting and historic day for Visa," said Visa's Chairman and CEO Joseph Saunders. "It marks the culmination of a more than two-year process that led to our global reorganization and our becoming a public company.

"We believe Visa's new structure positions us to meet the changing needs of our merchant and financial institution clients around the world as we seek to enhance and grow the products and services we provide to our customers," Saunders continued. "We operate in a large global market undergoing a significant shift from cash and check to electronic payments. We believe Visa is well positioned to build upon our past success and take advantage of this migration to electronic payments."

Late Tuesday, Visa priced 406 million of Class A shares at $44 a share, above the expected range of $37 to $42 a share. Visa expects net proceeds from the offering -- after deducting underwriting discounts and commissions and estimated offering expenses -- to be approximately $17.3 billion, it said on Wednesday.

Large IPOs typically don't spike in share price like Visa did on Wednesday, observers say. Investors may have taken a break from the dire news coming out of the financial sector to take advantage of the positive outlook for Visa. The company doesn't assume credit card loan risk onto its balance sheet, but instead makes money from transactions processed. Visa is also relatively shielded from a downturn in the U.S. economy. It has a large debit card network in which many purchases are "nondiscretionary," such as gas and groceries as well as other necessary items.

"The underwriters could have maybe sold it higher, but probably because of the weak market they erred on the side of caution and priced it to make sure that they're clients who got in on the IPO made money today," says Nicolas Einhorn, an analyst at Renaissance Capital, which runs the website IPOhome.com. "They could have sold it to clients at $60 but then it would have traded flat or down on the first day."

Many commercial banks will also receive a windfall from the IPO by selling their ownerships stakes in the company.

Others may have bought the stock after seeing MasterCard's ( MA) successful offering in 2006. MasterCard's stock rose 17% on its first day of trading from its offer price of $39 a share. The stock has risen more than 400% since then.

"It's certainly enough to take your breath away to see a stock price above the range in a market that is so schizophrenic and a deal of 406 million shares on top of that," says David Menlow, president of IPO Financial Network. "It's refreshing to see it, I don't fault anybody to say that they underpriced the offering, but the trap is people think this sounds the all clear for IPOs in general. This is a singular event that doesn't have very much bearing on the current state of the IPO market."

But Menlow says that the big premium on the stock in such a large offering "makes people nervous."

"What now? Who is going to buy my stock if I decide to sell?" Menlow says. He adds his firm was "looking for a small premium" on Visa's first day of trading -- more like 5% to 8% rise in the stock, not 30%.

Of course, Visa isn't totally immune to a worsening economic environment. If consumer spending drops off significantly, Visa's revenue will suffer from fewer completed transactions, if consumers close up their purses.

Einhorn added in an email that Visa's stock will also be somewhat susceptible the markets. " If the market goes down in the near future, that could drag Visa down with it -- that's probably one of the bigger concerns investors (and we) have right now," he said.

Shares of other credit card companies were mixed on Wednesday. After rising in the earlier part of the day, MasterCard shares closed down 1.2%, while American Express ( AXP) and Capital One ( COF) each fell nearly 4%. Shares of Discover Financial Services ( DFS) slumped 12% after the company posted disappointing quarterly earnings.

Visa's IPO is the largest in U.S. history, surpassing AT&T Wireless Services' $11.2 billion debut in 2000, according to NYSE. It is the third largest of all time, following Industrial & Commercial Bank of China's $21.9 billion IPO in 2006 and NTT Mobile Communications Network's $18.4 billion debut in 1998.

Google ( GOOG) raised about $1.9 billion in its first day of trading in 2004.

More from Stocks

Market of the Week: E-mini S&P 500

Market of the Week: E-mini S&P 500

Why Salesforce.com Is One of Jim Cramer's 10 Best Stocks for a Market Pullback

Why Salesforce.com Is One of Jim Cramer's 10 Best Stocks for a Market Pullback

Dow Trades Lower After Momentum From China Rally Fades, Nasdaq Rises

Dow Trades Lower After Momentum From China Rally Fades, Nasdaq Rises

How I'd Play the S&P 500 Right Now

How I'd Play the S&P 500 Right Now

Should You Buy Intel This Week Into Earnings?

Should You Buy Intel This Week Into Earnings?