The Company

The News

Visa

Visa raised a record $17.9 billion, and after the open Wednesday demand was so high that it took about 40 minutes to align buyers and sellers and start trading at $59.50 a share. The stock traded as high as $69.00 before pulling back near midday. Initial projections for the San Francisco-based company had shares going for between $37 and $42 apiece in the IPO.

J.P. Morgan and Goldman Sachs served as lead underwriters for the IPO, which surpassed the U.S. record set in 2000 by AT&T Wireless. That offering priced at $11 billion.

Visa Chief Executive Joseph Saunders said the offering was a satisfying conclusion to a two-year run-up to the listing.

"We operate in a large global market undergoing a significant shift from cash and check to electronic payments," he said. "We believe Visa is well positioned to build upon our past success and take advantage of this migration to electronic payments."

Mastercard, the No. 2 credit-card-processing company in the world, had its IPO in May 2006. The stock has nearly quintupled since, rising from an initial price of $46 a share to close Tuesday at $210.25.

The Analysis

There's plenty of hype around hotly anticipated IPOs think

Google

Vonage

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It's far too early to tell whether Visa's first day on the market is a passport to a constantly rising line on a price chart, but as a business it's much admired.

"This is a company that's head and shoulders above the others," says David Menlow, president of IPO Financial Network, a Millburn, N.J., firm. "The fundamentals really glisten. Mastercard is now a distant second for publicly traded credit-card companies. Now there's a new sheriff in town."

Morningstar analyst Michael Kon called Visa a "goliath" and "one of the most recognized and respected brands in the world" in a Wednesday research report. Its great strength is the global breadth of its network, which provides a steady stream of processing fees that he wrote would be almost impossible for any competitor to duplicate.

"Visa has contracts with thousand of issuers around the world that push Visa cards to their customers. Switching from one card network to another is a costly process and we think issuers don't have a lot of incentives to do so," he wrote. "On the other side of the network, acquirers have interest in acquiring as many transactions as possible and have no incentives whatsoever to stop acquiring Visa-branded cards."

Or using them, whether they're a path to more consumer debt through credit cards or direct withdrawals from bank accounts using debit cards. Even in a recession that curtails spending, Americans are using cash less often and debit cards more frequently Visa and Mastercard get fees for each transaction.

Menlow points out that in the rest of the world, debit card use is about 15% of credit card use. The growth of personal credit in markets like China and the rising adoption rates for debit cards in other markets represents enormous growth potential, he says.

The Bottom Line

It may be a while before small investors get their hands on shares of Visa, and that's OK. The dynamics of a stock going through an IPO often bear little resemblance to shares that have been traded for a while.

Given Visa's strong fundamentals, there's little reason to expect a Vonage-style collapse. But an overnight explosion probably isn't in the cards either.

Morningstar's Kon wrote that Visa is worth $74 a share, using the firm's fair value estimate, a measure partly derived from how likely he thinks the company is to keep competitors at bay for an extended period.

"Our base assumption is that processed transactions will grow, on average, by 14% over the next eight years and payment volume the dollar amount of purchases that flow through the Visa network will grow by 9% annually over the same period," he wrote. "We also assume that Visa will be able to raise prices by about 5% over the next two years. This results in a revenue growth assumption of 12%, on average, over the next eight years."

As Visa shares start to circulate more widely than the handful of big institutional investors who are the principal beneficiaries of IPOs they're certainly worth a look. Cash, once king, is now a commoner at best (and Americans traveling abroad on the weak dollar may see it as more of a jester), and Visa is the world's biggest middleman for card-based transactions.

But that growth is going to be steady, not frantic, like the prices of many IPOs, says Menlow. "It's going to be a buy-and-hold situation."