Morningstar

Visa Earnings: Growth Comes Back Down a Bit

Value-added services are still a bright spot.

The logo of credit card company Visa Inc. is seen on a credit card.
Silas Stein/picture alliance via Getty
Securities in This Article
Visa Inc Class A
(V)

Key Morningstar Metrics for Visa

  • Fair Value Estimate
    : $330.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of Visa’s Earnings

Following particularly strong fiscal second-quarter results, Visa V came back down to earth in its fiscal third quarter but continued to see strong growth.

Why it matters: Net revenue grew 13% year over year on a constant currency basis, down from 16% in the previous quarter, but in line with management’s full-year guidance.

  • Payment volume growth ticked up a bit sequentially to 10% on a constant-currency basis, with an uptick in domestic growth as the main driver. However, growth in July appears to have returned to the previous quarter’s level. All in all, though, consumer spending continues to hold up well, creating a good glide path for Visa.
  • Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 12% year over year during the quarter, up from 11% in the past few quarters. Stronger online commerce volumes were the main driver, and the headwinds in travel spending that Visa had previously seen due to the situation in Iran were offset by the World Cup.

The bottom line: We will maintain our $330 fair value estimate for the wide-moat company and see shares as modestly overvalued.

  • Adjusted operating margins (based on net revenue) declined to 66.7% from 67.5% last year. While Visa has seen strong growth this fiscal, this has been matched by increased investments in personnel and marketing. Management’s guidance suggests flat margins over the full year.
  • On the positive side, value-added services are still a bright spot, seeing 34% year-over-year growth in the quarter. While we appreciate the momentum we’re seeing in this side of the business, some of this growth appears to be driven by marketing revenue related to the World Cup, and we’re skeptical this level of growth can be maintained.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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