Visa Maintains Growth Though FX Headwinds Remain A Concern
Visa Inc (NYSE:V) reported its fiscal first quarter earnings on Thursday, January 29. The company reported a year-over-year increase in net income by 11% amounting to $1.6 billion for the quarter. [1] The net operating revenue also exhibited a year-over-year increase by 9% on a constant dollar basis to $3.4 billion. The increase in revenue was primarily driven by growth in payment volume, transactions processed and cross border transactions in the holiday season. However, revenue earned from the international market grew less than anticipated because of FX headwinds.
We have a price estimate of $269 for Visa’s stock, which is slightly higher than the current market price. The price estimate will be updated shortly to account for the stock split announced by Visa.
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Moderate Growth in Payment Volume and Transactions
Visa’s payment volume grew year-over-year by 11% to $1.2 trillion on a constant dollar basis. However, in nominal dollars, it grew only by 7%. The continued strengthening of the U.S. dollar slowed growth in the Asia Pacific, Canadian and Latin American region in the last quarter.
The company also witnessed an increase in its cross-border volume, which saw a year-over-year growth of 8%. The cross-border volume faced certain push backs due to geopolitical pressure in Russia and Ukraine, where it had to suspend operations in the Crimea region in December. Travel into the U.S from Europe, Canada, and Latin America also slowed down. Additionally, increased currency fluctuation also had a negative impact on the revenue earned outside of the U.S. ((Visa’s (V) CEO Charles Scharf on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha))
The total number of processed transactions – which includes Visa, Visa Electron, Interlink and PLUS cards on the Visa network – also grew year-over-year by 10% to $17.6 billion in the last quarter backed by increased holiday spending. The growth in transactions processed in the U.S. was 9%, and in the international market it was around 14%. Consumer spending increased in the last quarter due to positive consumer sentiment caused by falling gas prices and improvements in the U.S. economy. Visa conducted a survey and found that the average consumer saved around $60 per month due to lower gas prices; out of this, on average 50% is saved, 25% is used to pay off debt and the remaining 25% is spent on personal expenditures. Therefore, we expect consumers to have more discretionary income in the coming months, as their savings are likely to increase.
Going forward, Visa expects to maintain moderate growth momentum in the first half of 2015 and further accelerate its growth rate in the later months when currency fluctuation and gas prices stabilize.
Consistent Focus on Building Digital Payment Platform
Visa continues to globally expand its digital platform. Visa Checkout, a digital payment service, accounts for around 50% of the total e-commerce volume of Visa. The company also expects to see positive results through its partnership with Apple Pay that already has around 750 banks and credit unions registered with technology. These issuers account for about 75% of U.S. payment volume. Visa is likely to benefit from this upcoming mobile payment technology through increased payment volume and transactions.
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