Visa Earnings Preview: Improving U.S. Economy, Global Shift To Plastic To Help Visa Maintain Growth
Visa (NYSE:V) is scheduled to report earnings for the fourth fiscal quarter of 2013 on Wednesday, October 30. [1] The company has reported double-digit revenue growth for each of the last five years, helped by a recovering global economy and a worldwide shift to plastic. The card processing giant’s net income surged 16% last quarter, with a 14% year-on-year increase in total processed transactions. Visa’s results also benefited from the Dodd-Frank routing rules, with quarterly Interlink payment volume growth turning positive in June after a year of negative growth. We expect another quarter of solid growth from the company this time around, and will keep a close eye on the international performance, particularly in Asia.
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U.S. Consumer Trends
The improving job market has lifted consumer spending trends in the U.S. The U.S. Commerce Department reported a 0.3% increase in consumer purchases in August, the fourth consecutive increase in monthly consumer spending. [2] Wages increased 0.4% during the month, as the unemployment rate in the country dropped to 7.3%. [3] Visa’s peer Discover Financial (NYSE:DFS) recently reported a 3% increase in sales volume for September, while American Express’ (NYSE:AXP) card-member spending grew 8% over the prior year as the unemployment rate dropped further to 7.2% in September.
American Express and Discover account for 4% and 1% of personal consumption expenditures (PCE) in the U.S., respectively, [4] and positive results from these two companies can be used to gauge those of Visa, which dominates the card processing market in the country. Visa accounts for nearly a quarter of the spend in the U.S. through a network around 12,000 issuer clients and long-term contracts with over 600 financial institutions which issue cards bearing the famous Visa logo. [5]
The implementation of the Durbin amendment to the Dodd-Frank bill, which requires banks with more than $10 billion in assets to use separate payment processing networks, hindered Visa’s growth in the past as the company’s logo was present on three out of every four debit cards in the U.S. Debit volume fell 4% in the first three months of 2013 but increased 12% in the third fiscal quarter as the market adapted to the new regulations. The gross dollar volume (GDV) from the U.S. is evenly split between debit and credit cards and we expect the company to replicate the 11% increase in payment volume it reported last quarter.
International Expansion
Visa is looking to capitalize on the strong economic growth shown by developing countries, particularly in Asia. Nearly 60% of Visa’s payment volume outside the U.S. comes from Asia Pacific, where the company reported a 14% year-on-year increase in volume last quarter. Unlike the U.S., where GDV is split between debit and credit cards, credit cards account for 80% of Visa’s payment volume outside the U.S. The company is already on track in markets like India, Mexico, Brazil, Russia, Indonesia, South Africa and the UAE, with 9% of the PCE coming from these countries. The total PCE from these markets is around $10 trillion with paper-based transactions accounting for 62% of the PCE. The PCE growth has been over 10% for the last four years in these economies. [5] We expect further expansion in emerging markets from Visa this quarter.
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Notes:- Event Calendar [↩]
- Consumer Spending in U.S. Climbs 0.3% as Incomes Pick Up, Bloomberg [↩]
- U.S. Department of Labor, Labor Force Statistics from the Current Population Survey [↩]
- Personal Consumption Expenditures, U.S. Department of Commerce: Bureau of Economic Analysis [↩]
- investor meeting for 2013 [↩] [↩]