Visa Earnings: Results Improve Sequentially; Consumer Spending Holds Up

Key Morningstar Metrics for Visa

• Fair Value Estimate: $306.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Visa’s Earnings

Visa V delivered a strong fiscal third quarter which suggests consumer spending is holding up well.

Why it matters: Constant-currency net revenue growth improved sequentially, coming in at 14%, up from 11% in the previous quarter.

• Volumes are holding firm, with overall payment volume increasing by 8% year over year on a constant-currency basis, up 60 basis points from the previous quarter. US growth was 7%, up 80 basis points from the previous quarter. Transaction growth was up 10%, up 1 percentage point sequentially.
• Over the past couple of years, Visa has been enjoying a tailwind from a bounce back in travel, but that appears to have ended. Constant-currency cross-border volume, excluding intra-Europe transactions, which are priced similarly to domestic transactions, grew by 11% year over year in the quarter, down from 13% in the previous quarter. This quarter suggests cross-border volume is fully normalized, in our view.

The bottom line: We will maintain our $306 fair value estimate for the wide-moat company and see shares as modestly overvalued.

• While consumer spending is holding for now, we believe tariffs create significant near-term uncertainty and don’t think the current market price factors in the possibility of a downturn.
• Excluding onetime items, operating margins (on a net revenue basis) declined 10 basis points year over year. However, we don’t focus on near-term margin results, as investments for growth often drive short-term margin movement. On the positive side, client incentive growth was relatively muted at 13% in the quarter.