Visa’s net revenue rose by 13% in the first quarter to $10.9bn, ignoring currency impacts. This was 2% ahead of consensus, with all revenue lines coming in better that expected except for cross-border transactions.
Underlying net profit came in at $6.1bn, with growth of 12% lagging net revenue due to higher costs and income taxes.
Free cash flow was up 27% to $6.4bn, helped by profit growth and the timing of settlement payments. Net debt came in at $4.8bn.
Visa spent $5.0 on payouts to shareholders over the quarter, mainly on share buybacks.
Full-year guidance of low-double digit growth in net revenue and operating expenses was unchanged. However, expenses growth in the current quarter is expected to hit the mid-teens.
The shares closed down 3% on the day that followed the announcement.
We have changed our treatment of Visa’s client incentives with current and non-current obligations now excluded from our net debt calculation.
Our view
Visa had a resilient start to the year, although signs of slowing growth in lucrative cross border payments have intensified. Cost growth remains a risk; we are monitoring whether a forecast uptick in the second quarter will be offset by lower spending later in the year, as full-year guidance implies.
Volumes in the US are moving in the right direction but with the cash-to-card transition arguably complete in the US, there are relatively few levers Visa can pull in the event of a slowdown in its largest market. If pressure from Washington results in either a cap on credit-card lending rates or processing fees, Visa’s revenue streams are likely to be negatively affected.
Visa’s cash generation continues to impress. Surplus funds are being returned to shareholders through a combination of dividends and share buybacks. The emphasis is on the latter, meaning the prospective yield is a modest 0.9%. Remember, no shareholder returns are guaranteed.
Competition from start-ups and established rivals remains a risk to monitor. More recently, a change in regulatory attitudes towards the acceptance of cryptocurrencies, in particular asset-backed stablecoins in mainstream payments, looks like a potential threat to the dominance of the card networks.
Visa’s model is more weighted towards payments than its key rival, which is shifting at a quicker pace towards data and analytics. That leaves it more exposed if margins decline in the traditional business. It’s not turning a blind eye to rush towards cryptocurrencies, which are being integrated into the company’s technology roadmap, but it’s too early to tell if the risks outweigh the opportunities.
It’s also positioning itself as a key partner to merchants in an increasingly complex payments landscape. AI-driven or ‘Agentic’ commerce has the potential to further strengthen Visa’s position in the payments ecosystem, as well as drive demand for its growing range of services, such as cybersecurity and data analytics.
Long-term we see payments in general as an attractive business. Visa's business model means that additional transactions are virtually costless, so extra revenue turns straight into profit. It’s not the fastest-growing of the card networks, but recent pressure on the valuation looks to be a little overdone. If growth meets market forecasts, we think there could be some attractive upside on offer. However, regulatory uncertainty and cross-border weakness remain obstacles that could get in the way.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Visa’s management of ESG risks is strong.
Visa has a board-level committee that oversees its ESG strategy and related responsibilities and places a noticeable emphasis on ethics training. Visa has been and continues to be subject to anti-competitive related lawsuits; ongoing litigation alleges that Visa has abused its dominant market position to fix fees paid by merchants. It has implemented measures to monitor and mitigate data breaches and cyberattack. The company commits to a diverse and inclusive workplace and has implemented a target across its US workforce to increase historically underrepresented employees by 50% by 2025.
Visa key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.