Visa’s fourth quarter net revenue grew slightly ahead of market forecasts rising 11% before exchange rate movements to $10.7bn. This was underpinned by continued healthy consumer spending.
Underlying net profit was up 7% to $5.8bn, reflecting an acceleration in operating expenses growth and an increased tax rate.
Full year free cash flow rose 15% to $21.6bn and net debt came in at $16.6bn.
Visa spent $22.8bn on payouts to shareholders during the year, mainly on share buybacks.
For the new financial year Visa expects both net revenue and operating expenses to grow at ‘’low-double-digit’’ rates, broadly in-line with market forecasts.
The shares were trading flat in after-hours trading.
Our view
Visa’s third quarter results contained few surprises, with another small beat to forecasts flattered by lower- than-expected incentives to corporate clients. Markets barely flinched, but spending across Visa’s payment network is holding up well and the company is looking to maintain similar growth rates this financial year. However, growth in lucrative cross-border payments has continued to slow and is something to keep an eye on going forward.
Volumes in the US are moving in the right direction but the outlook for the American consumer is a little mixed. 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.
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 0.8%. 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. If growth meets market forecasts there could be some more upside on offer. However, it’s not the fastest growing of the card networks, and its relatively high dependence on payment volumes, means it could be more exposed to ups and downs in the economic cycle.
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.