Visa Q3 Earnings: Revenues And Earnings Grow, Even As Cross-Border Growth Slows

July 25th, 2014 by Trefis Team
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Visa (NYSE:V) reported earnings results for the third fiscal quarter of 2014 on July 24, with net income for the quarter increasing 11% year-over-year to $1.4 billion. [1] Net operating revenues increased 5% nominally or 7% on a constant currency basis to $3.2 billion, on the back of increased global payments volume and processed transactions. The company also reduced total operating expenses by 3% to $1.1 billion, on the back of lower personnel, marketing and professional fees. [2]

Going forward the company lowered its guidance for 2014 revenues growth to 9-10% as compared to an earlier outlook of 10-11%. It also expects earnings per share growth rate to be around 17.5-18.5%. [3]

We have a price estimate of $197 for Visa’s stock, which slightly below the current market price.

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See Our Full Analysis for : Visa|MasterCard

Payments Volumes and Transactions Rise

The U.S. accounts for more than half of Visa’s overall payments volume. In the U.S., electronic payment penetration is at mature levels of over 60%, so growth for Visa in the country is largely determined by the prevailing consumer spending sentiment. Payments volume for Visa increased 11% compared to the previous year on a constant dollar basis, to $1.2 trillion. Total processed transactions for the quarter grew by 11% year-over-year to 16.7 billion. [4]

The continued uncertain growth of the U.S. economy has restricted growth for credit card companies. In the first quarter of 2014, GDP contracted by 2.9%, compared to an expansion by over 2% in the fourth quarter of 2013. [5] According to the Bureau of Economic Analysis, disposable personal income (DPI) increased to $55.6 billion in May 2014 from $50.8 billion in the previous month. Personal consumption expenditures (PCE) increased $18.3 billion, or 0.2 percent as compared to an increase of just $2.3 billion in April. [6] Growth for Visa is dependent upon the total number of transactions processed, as Visa charges fees for each transaction. The gross dollar volume per transaction for Visa is around $70. The number of transactions tend to slow down in unfavorable economic environments, with weaker consumer sentiment. However, as metrics such as PCE and disposable income points towards an improving consumer sentiment, we expect Visa’s growth to continue going forward.

Cross-Border Growth Declined

Cross-border fees account for nearly 25% of Visa’s total revenue. On a constant dollar basis, the cross-border volume expanded by just 7% for the quarter ended June 30, 2014, a 100 bps decrease from the 8% growth in the March quarter. U.S. and international operations each saw 7% growth. [3]

Going forward, political tension and tepid global economic conditions will pose a challenge to the company’s cross-border growth prospects. We will closely track developments in the coming weeks as the company ratchets up its forays internationally, especially in the high potential Asian market. We are in the process of updating our model as per the latest earnings release.

New Technologies To Fuel Future Growth

For further growth the company is betting on new technology and products. [2] Recently, it launched Visa Checkout, a payment service that allows customers in the U.S., Canada and Australia to make payments for online shopping transactions in a much simpler manner using Visa debit or credit cards through different devices. [7] The company is also relying on increased partnerships with financial institutions and merchants to further its growth momentum. [2]

We are in the process of updating our model to account for the latest quarterly results.

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Notes:
  1. Visa Inc. Reports Fiscal Third Quarter 2014 Net Income of $1.4 Billion, Visa Investor Relations [↩]
  2. SEC 8K Filing, July 24 2014 [↩] [↩] [↩]
  3. Visa’s CEO Discusses FQ3 2014 Results – Earnings Call Transcript [↩] [↩]
  4. SEC 10-Q Filing, July 24 2014 [↩]
  5. News Release June 25 2014, Bureau of Economic Analysis [↩]
  6. Personal Income and Outlays, May 2014 Bureau of Economic Analysis [↩]
  7. Visa Introduces Visa Checkout to Simplify Online Shopping on Any Device, Investor Relations [↩]