Visa (V) – Earnings Review – April 27, 2024
Visa is arguably the most important company in the world for gauging spend volume appetite for consumers and corporations. That’s what we’ll focus on in this report. Taking the credit and balance sheet risk is not its business model. It merely provides a scaled network to host complex payments flows. For this reason, it’s not a valuable gauge for credit health like Bank of America, American Express, Capital One, etc.
Demand
Visa beat revenue estimates by 1.9% & beat vague “mid-to-high single digit” revenue guidance. Its 15.3% 3-year revenue CAGR compares to 14.9% Q/Q and 19.1% 2 quarters ago.
- Service revenue rose by 7% Y/Y.
- Data processing revenue rose by 12% Y/Y.
- International transaction revenue rose by 9% Y/Y.
- Other revenue rose by 37% Y/Y as it had a strong quarter for things like consulting and marketing fees.
“Overall payments volume grew 8% and cross-border volume grew 16%, driven by stable consumer spending.” – CEO Ryan Mclnerney
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Profitability & Margins
Visa beat $2.43 GAAP EPS estimates by $0.08 and beat its vague EPS growth guidance. Legal charge growth is the source of the Y/Y EBIT margin contraction. That’s why GAAP OpEx rose by 29%, while non-GAAP OpEx (which excludes this noise) rose by just 11% Y/Y.
Its GAAP effective income tax rate was 4 points lower vs. the Y/Y period, which is why the GAAP net income margin contraction is much smaller than for GAAP EBIT margin.
- GAAP EPS rose by 12% Y/Y.
- Non-GAAP EPS rose by 20% Y/Y when excluding the impacts of litigation, equity investments and amortization of acquired intangibles.
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Balance Sheet
- $20.8B in cash, equivalents and investment securities.
- $20.6B in debt.
- Share count fell by 2.8% Y/Y via continued buybacks.
- Dividends rose by 12.4% Y/Y.
Guidance & Valuation
- Reiterated low double digit annual revenue growth guidance. This is slightly better than 9.7% Y/Y growth expectations.
- Reiterated low teens annual EPS growth guidance. This is roughly in line with 13% Y/Y growth expectations.
- Lowered payment volume growth guidance from low double digits to high single digits.
Quarter-to-date, U.S. payments volume slowed to 4% Y/Y from 6% last quarter. This was predominantly due to Easter holiday timing. The team sees no sharp changes in consumer spend appetite.
Visa trades for 28x 2024 earnings. Earnings are expected to grow by 13% Y/Y.
Call & Release Highlights
Volume:
Slowing payment volume in Asia, and especially Mainland China, was called out by the team. That is why it lowered payment volume expectations for the year. It sees this as purely macro-related. Aside from that, volume growth was wonderfully resilient. Total FXN volume growth of 8% is stable compared to 8% Y/Y last quarter. Debit is stable at 9% Y/Y growth; credit is stable at 8% Y/Y growth. Currency headwinds led to actual growth slowing from 9% Y/Y to 7% Y/Y this quarter. In the U.S. specifically, total growth accelerated from 5% Y/Y last quarter to 6% Y/Y this quarter. Credit is steady at 6% Y/Y growth; debit accelerated from 5% to 6% Y/Y growth. That’s ideal, as it means customers are spending money that they actually have, rather than levering up their personal balance sheets.
- Internationally, growth slowed from 12% Y/Y to 8% Y/Y due to currency headwinds. On an FXN basis, growth slowed from 12% Y/Y to 11% Y/Y.
- Cross-border volume rose 16% Y/Y to maintain robust growth compared to last quarter’s 16% Y/Y result.
One may wonder, “how far can the Visa growth engine go?” Well… there’s no reason to think this runway is anything but long (even now). 50% of all transactions are still done via cash or check, and this company is perhaps the most powerful cash displacer in the world. Continued GDP growth and investments in fintech and next-gen payment rails to insulate them from competitive risks are two more reasons for optimism. This gigantic company could easily be a lot more gigantic over the long haul.
Partners:
8 of the 10 largest co-branded card programs in the USA are Visa partnerships. It just renewed its Alaska Airlines partnership and added Qatar Airways, Royal Air Maroc, and British Airways this quarter too. A Marriott extension, Robinhood’s Gold Card, SAP’s Taulia for virtual cards, and Trade Republic were highlighted as more partner wins during the quarter.
Tap-to-Pay:
Momentum for this payment form-factor is strong. Tap to pay rose by 5 points to 79% of total face-to-face transactions. Adoption rates in Japan doubled to 30% while New York City became the first major city in the USA to approach 50%.
Open Banking:
Open Banking simply means better data sharing and more consumer choice for storing and moving funds. Visa, through a purchase of Tink two years ago, has been hard at work on Open Banking in Europe. It signed Adyen and Revolut and is now setting its sights on the U.S. market. To get things jump-started, it has already signed open banking partnerships with Capital One, Fiserv and others.
Legal Settlement:
Last month, Visa settled a major lawsuit with merchants. It set restrictions on interchange fees among other things. Details about the settlement can be found in section 5 of this article.
Take
This was another strong quarter for a wonderfully consistent and elite enterprise. More of the same. In terms of the read-through to the economy, consumer spend levels are slowing, yet remain in quite good shape. Easter serving as the source of this weakness also makes slowing even less concerning, while talks of spend resilience are great to hear. Great quarter, great company and good news for the overall economy.
