Visa’s net revenue rose 14% in the third quarter to $10.2 bn, beating analyst expectations. An 8% rise in payment volumes and a 12% increase in cross-border payments reflected resilient consumer spending.
Underlying net profit was up 19% to $5.8bn, supported by cost growth coming in a little slower than revenue, and a lower tax rate.
Free cash flow improved from $12.3bn to $15.7bn over the first three quarters, with net debt at $16.0bn.
Full-year guidance remains unchanged, with "low-double-digits" net revenue growth (consensus at 10%), and "low teens" EPS growth (consensus at 13%).
The company repurchased $4.8bn of shares in the period. A quarterly dividend of $0.59 per share was announced.
The shares fell 2.4% in afterhours trading.
Our view
Visa’s beaten market forecasts for each of the last two quarters, but the lack of a full-year upgrade in the third quarter disappointed the market. The most recent beat wasn’t as strong as it seemed on the surface, with payment volume growth in single-digit territory and revenue flattered by a deceleration of incentives paid out to corporate clients. While that’s provided a short-term boost, it does raise some concerns about the sustainability of current growth rates.
The volume of lucrative cross-border transactions continues to expand faster than domestic volumes, but growth has slowed considerably as tailwinds from the post-covid travel boom have moderated. With the cash-to-card transition arguably complete in the US, there are relatively few levers Visa can pull to mitigate any slowdown in its largest market.
Visa generated around $19bn of free cash flow last year and is expected to build on that number this year. This 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%. Remember no shareholder returns are guaranteed.
Competition from start-ups and more 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 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. Its unified checkout service has the potential to lower payment failure rates for businesses and help Visa benefit from growth in digital payments, regardless of the payment method chosen by customers.
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. But high exposure to the US means that Visa’s fortunes are more closely tied to the health of this economy than some of its competitors. With a valuation towards the top of its peer group and above the long-term average, it’s a little vulnerable to disappointments.
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.
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