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Visa - card spending growth boosts quarterly profit

Visa's net revenue rose 11% to $8.6bn in the fourth quarter and ignoring the effect of exchange rates.

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Visa's net revenue rose 11% to $8.6bn in the fourth quarter and ignoring the effect of exchange rates. Despite a 9% increase in operating expenses, the higher revenue helped underlying net income rise 18% to $4.8bn.

There was a 9% increase in payments volume and a 16% uplift in cross-border total volumes. CEO Ryan McInerney said consumer spending has been "resilient" over the year, but also acknowledged the economic uncertainty.

Visa had net debt of $12.4bn as at the end of September.

A quarterly dividend of $0.520 per share was announced, up 16%. Visa also announced a new $25bn buyback.

The shares fell 1.5% in pre-market trading

View the latest Visa share price and how to deal

Our view

Global consumers are proving more resilient than feared. As a payment and transaction giant, that's a trend playing nicely into Visa's hands. 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. That offers a level of protection in the face of an economic downturn.

A particularly sharp economic downturn could see credit defaults start to swell, but for now, Visa's benefiting from higher credit spend without that risk looming.

We are monitoring the fact that 50% of Visa's transaction volumes are US-based. Here consumer debt levels have grown relatively quickly in recent years. Consumer spending will need to be watched closely after the festive rush is out the way. With the cash-to-card transition arguably complete in the US, there are relatively few levers Visa can pull to mitigate a slowdown in its largest market.

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. And this area of the business is enjoying a rebound.

We're supportive of Visa's attractive business model. Additional transactions are virtually costless, so extra revenue turns straight into profit.

Debt, which includes obligations for crucial client incentives, is currently easily covered by free cash flow meaning there's plenty of spare cash to go around. 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 1.0%. Remember no shareholder returns are guaranteed.

Competition from start-ups and more established rivals has become a greater risk recently. But it's not one Visa's left unchecked. The group's been making strategic acquisitions. These are more digital-focused financial tools and could also accelerate Visa's growth outside of the US. We're supportive of Visa's efforts to broaden its revenue streams.

Long-term, we see payments in general, as an attractive business. Visa's valuation's not as demanding as it's been in the past, in part due to recessionary concerns, but it's growth rate has not been as impressive as some of its peers. Its relatively high exposure to the US means that may continue to be the case for some time to come.

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.

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.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 25th October 2023