Summary
First, I discuss Visa’s share price in light of the Amazon UK news.
Second, I reveal the true impact on Visa versus the market reaction.
Third, I show Visa’s price volatility and overall price action over time.
Fourth, I dive into Quant Ratings but also what the Analysts are saying.
Lastly, I provide some ideas around both trading and investing in Visa.
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Justin Sullivan/Getty Images News What Happened?
I’m sure you’ve seen some version of this Visa ( V ) news by now: Source: Seeking Alpha
We’ve been told it’s because Amazon ( AMZN ) is going to stop accepting UK issued V credit cards. Specifically, Reuters reports : “As a result of Visa’s continued high cost of payments, we regret that Amazon.co.uk will no longer accept UK-issued Visa credit cards as of 19 January, 2022,” an Amazon spokesperson said in an emailed statement. Amazon customers can still use Visa debit cards, Mastercard and Amex credit cards, and Eurocard, the company said in a note to its customers. The deeper question is why would AMZN do this? The answer is quite simple. When the UK was part of the EU there was a cap on interchange fees : As a general rule, the Regulation will cap interchange fees at 0.2% of the transaction value for consumer debit cards and at 0.3% for consumer credit cards. For consumer debit cards, it also gives flexibility to Member States to define lower percentage caps and impose maximum fee amounts. In short, the policy benefits AMZN by keeping costs lower and increasing profitability. It would appear that the UK is the whipping boy, or more specifically, V is being used as an example as AMZN flexes their muscles. The Spin Doctors
Of course, the spin is that V’s fees are too high : “If Amazon can’t make it work, with all their resources and ability to navigate legislation to avoid costs, then small businesses have no chance and so the government must improve the UK-EU trade and cooperation agreement to keep British businesses competitive,” said Tamara Cincik from UK Trade and Business Commission While that might hold some truth, the counterargument is that AMZN is using its monopoly power to get what they want. You might be surprised to know that the UK’s online market is the third-largest in the world , behind the United States and China. According to the latest data, Amazon’s share in that market increased from 28.8% in 2018 to 30.1% in 2019. In other words, it’s dominating the UK’s online retail market, leaving eBay as the second biggest player with a 9.8% share. Perhaps this is less about V’s high fees and it’s more of a warning shot past the EU so they stay in line, and keep fees low.
To be very clear, I see the actual “real world” impact on V to be rather small. Shockingly, I even agree with some of the analysts . Amazon U.K. had ~$26.5B in 2020 sales. “Assuming 60% was through Visa ( V ), but only 30-40% from Visa credit cards, we estimate Amazon U.K. contributes ~0.10% of Visa’s total volumes ,” Faucette said. [Emphasis: Author] In other words, should a potential 0.10% volume decline generate a gigantic 5% drop in one day? It’s an overreaction in my estimation. Emotions are running high, but the math is pretty clear . Some Charts and Graphs
First, consider the following: To be perfectly clear, many short-term traders will not like this because it appears that V has fallen through multiple support levels, and below the averages. So, it maybe seems a little scary.
Second, we also know the following: 1-month low = $199.46
52-week low = $192.81
In a way, I think of these prices as floors. More about that soon enough.
Third, we can see this: Data by YCharts V very rarely falls below its 200-day moving average . When it does drop, it doesn’t generally last too long. This isn’t meant to be any kind of magic or crystal ball guessing. Instead, it’s simply showing that the bottom has fallen out on V and there’s been a violent negative drop.
Fourth, we can peek into V’s implied volatility to get a reading on the fear. This is useful for both traders and investors. In any case, here we go : V implied volatility (IV) is 26.6, […]
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