Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Visa-beats expectations

Net revenue rose 24% to $7.1bn in the first quarter, driven by...

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 2 years old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Net revenue rose 24% to $7.1bn in the first quarter, driven by double-digit growth in Payments Volume, Cross Border Volume and Processed Transactions. Underlying net income rose 25% to $3.9bn, above market expectations.

The board authorised a new $12bn share repurchase programme on 13 December in addition to the remainder of the last approved buyback scheme.

The group will pay a dividend of $0.375 per share.

The shares rose 5.3% in after-hours trading.

View the latest Visa share price and how to deal

Our view

The pandemic accelerated the shift toward cashless payments and Visa, as the world's largest payment processor, handling some 164.7bn transactions last year, is positioned squarely in the centre of this trend.

Contactless payments have become the norm among a more health-conscious public, increasing card use in small transactions. This trend's only just hit the shores of the US, so there's plenty of growth potential ahead.

But while there are exciting opportunities, it's important to focus on the here-and-now.

Despite appearances, Visa isn't a 'credit card company'. It doesn't lend consumers money or run accounts, so it's not on the hook for the money if a customer defaults. Instead, Visa charges banks for transferring funds.

Service revenues are charged to card issuers and are calculated based on the value of the transactions. Data processing revenues depend on the number of transactions that take place and are charged to the bank of both the customer and the receiving business. Cross border transactions come with additional fees and currency conversion revenues.

That's always been a very attractive business model. Additional transactions are virtually costless to Visa, so extra revenue turns straight into profit. Capital expenditure is limited, meaning profits convert well into cash. Of course, the reverse is also true - so short-term revenue falls have a direct effect on profit.

Net debt was substantially lower than last year's cash profits, so surplus cash is 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 0.7%.

Competition from start-ups and more established rivals has become a greater risk recently. Last year's dispute with Amazon highlighted the group's shrinking moat. Visa's power lies in its expansive network and losing Amazon could have damaged that. While the decision to remove Visa as a payment option on Amazon turned out to be temporary it underscores that Visa does have some chinks in its armour.

We continue to see payments in general, and Visa in particular, as an attractive business. The valuation's not as demanding as it's been in the past, in part due to inflationary concerns and their impact on future earnings. But we're still mindful that near-term volatility is possible if the group doesn't live up to the market's expectations.

Visa key facts

All ratios are sourced from Refinitiv. 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.

Trading Update

Excluding currency movements, payments volume rose 20% as the total number of transactions rose from 51.6bn to 62.3bn. There was "better than expected progress" in the return of Cross-Border channel, where volumes adjusted for currency changes rose 40%. Processed Transactions, which are those that go directly through Visa, were up 21% on a constant currency basis to 47.6bn.

Service and Data Processing revenue each increased 19% to $3.2bn and $3.6bn respectively. International Transaction revenue rose 50% to $2.2bn and Other Revenue was up 17% to $449m. The group spent 25.1% of gross revenue, or $2.4bn, on client incentives.

Operating expenses - excluding one-time payments for lawsuits and purchases - rose 16%, primarily due to a higher number of staff and marketing spend.

Higher profits helped free cash flow rise to $4.1bn, from $3.4bn last year. Net debt stood at $6.2bn on 31 December, up from $4.5bn on 30 September, reflecting a lower amount of cash due to ongoing lawsuits and an increase in short-term debt.

The group acquired Currencycloud, a foreign exchange platform, on 20 December in a deal valued at £700m.

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 Refinitiv. 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. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Laura Hoy
Laura Hoy
ESG Analyst

Laura is part of HL's ESG analysis team, working to offer research and analysis to help with sustainable decision making. She also works with other parts of the business to help integrate ESG.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 28th January 2022