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Visa - double digit increases across the board

Second quarter net revenue rose 25% to $7.2bn, reflecting double digit increases across payment volumes, cross-border volumes and processed transactions.

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Second quarter net revenue rose 25% to $7.2bn, reflecting double digit increases across payment volumes, cross-border volumes and processed transactions. Underlying net income rose 27% to $3.8bn.

As previously announced, Visa has suspended its Russian operations. The group said: "total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, were approximately 4% of our consolidated net revenues".

The board has declared 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, 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.

Capital expenditure is limited, meaning profits convert well into cash. Of course, the reverse is also true - so revenue falls can, and have previously, hurt profit growth.

Net debt was substantially lower than last year's cash profits, and 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 0.8%.

Competition from start-ups and more established rivals has become a greater risk recently. Recent disputes 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.

That's partly why Visa may have upped its acquisition activity, with the latest additions to the fold including Tink and Currencycloud. These are more digital focussed financial tools, and we're supportive of Visa's efforts to broaden its revenue streams in this way. Although, we're mindful it's a bit early to know if these investments are worth their weight in gold. Looking to the rest of the year, management also expects a continued recovery in cross-border travel, together with those acquisitions, this should help net revenue rise at an impressive rate.

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.

Second Quarter Results

Excluding currency movements, payments volumes rose 17%, ignoring the effect of exchange rates, while total cross-border volumes were up 38% compared to last year. Performance has been helped by a rebound in international revenue, with international transaction revenues rising 48% to $2.2bn.

Service and Data Processing revenue rose 24% and 16% respectively, each reaching $3.5bn.

Underlying operating expenses were up 16% at $2.3bn, and Visa upped spending on client incentives by a quarter, to $2.5bn.

Higher profits helped free cash flow reach $7.3bn, while net debt stood at $8.7bn as at the end of March.

The group also highlighted details of a fintech acquisition: "On March 10, 2022, Visa acquired Tink - an open banking platform that enables financial institutions, fintechs and merchants to build financial products and services and move money. Through a single API, Tink enables its customers to move money, access aggregated financial data, and use smart financial services such as risk insights and account verification. Tink is integrated with more than 3,400 banks and financial institutions, reaching millions of bank customers across Europe."

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: 28th April 2022