Investors opened up their arms and wallets for Visa's (NYSE:V) long awaited initial public offering (IPO) on Wednesday, making it the largest in U.S. history. Concerns had mounted over whether the volatile economic environment was conducive to IPOs, but even as the Dow Jones Industrial Average dropped nearly 300 points, investors snapped up shares, sending the world's largest processor of credit and debit cards soaring.

Monstrous IPO... For A Credit Company?
Visa's IPO was priced above expectations at $44 per share, but shares soared as high as $69 in trading, and ended up closing 28% higher at $56.50. The 406 million share offering was so oversubscribed, that the underwriting banks involved exercised their option to buy an additional 40.6 million shares of common stock at the IPO price of $44. The net proceeds for Visa, deducting estimated underwriting expenses, are around $19.1 billion. This makes the IPO by far the biggest in U.S. history, leapfrogging AT&T's $10.6 billion offering, and puts it awfully close to taking out the $19.1 billion offering from the Industrial & Commercial Bank of China as the largest in the world's history. (For everything you ever wanted to know about IPOs, read our IPO Tutorial.)

How, you may ask, does a credit card company's IPO go off with out a hitch when the market is scared of anything to do with credit? Unlike other credit card companies who lend, Visa carries no consumer debt on its books. The company is completely insulated from the current credit crisis. It makes its money from transaction fees which have been rising nicely. Visa handled more than 44 billion transactions last year, totaling around $3.2 trillion, much more than its main competitor MasterCard (NYSE:MA), whose shares are up over 450% since its IPO in May of 2006.

Good Sign for the Markets
This exuberance for Visa's IPO was a healthy sign for the broader market. For such a large IPO to be priced higher than expectations and be oversubscribed was quite a feat. This shows that investors are not just pulling there money and running. Paired with the heavy volumes in the market, I think it is a sign of volatility rather than an ensuing crash. The Dow was up more than 400 points on Tuesday, and despite giving up much of that gain on Wednesday, it is a sign that people are not afraid of buying.

Should Investors Buy after the Run Up?
People often have the misconception that IPOs always do well after their debut. This is not the case. Some, like MasterCard, are phenomenal, others like Blackstone (NYSE:BX) have been far from impressive. With anything in investing, it is a case by case basis. I think with Visa's insulation from most of the market's problems makes it a good company to hold in a portfolio. The main risk with the stock is if lawsuits pan out against Visa. The company put $3 billion from the offering into an escrow account for potential liabilities from a lawsuit that Visa attempted to stifle competitors and fix prices.(To read more about failed IPOs, check out The Murky Waters Of The IPO Market.)

I think the stock would be good to add to the portfolio. An IPO is generally very volatile, though, and I think this will be especially true in the current market conditions. So, it may be wise to watch the ticker to pick it up on the dips.

The Bottom Line
Visa's IPO was the biggest in U.S. history and potentially the world. This feat, in an uncertain market, shows that not all is lost and that not all investors are running for the hills. Visa's business is quite attractive and is insulated from the current credit crisis. I think the stock is attractive, but with IPOs generally being very volatile, it would be wise to buy on the dips.

Related Articles
  1. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  2. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Security

    A financial instrument that represents an ownership position ...
  4. Series 6

    A securities license entitling the holder to register as a limited ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  6. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!