Visa Stock Rises As Earnings Surpass Expectations
Visa (NYSE:V) beat market expectations for the third fiscal quarter of 2015, with net income increasing 25% over the prior year. [1] Visa’s stock got a boost as the company reported robust growth in both the top and bottom lines. Operating revenues, which include transaction, assessment and international fees, rose nearly 10% year-over-year (y-o-y) to $1.5 billion in the quarter ended June. [2] The impressive rise in net income came despite an almost equivalent increase in total operating expenses due to higher personnel and general expenses and investments in technology during the period. Visa’s strong results during the quarter came on the back of solid growth in payments volume, cross border volume as well as the total transactions processed. Payments volume growth (on a nominal basis) in international markets outpaced growth in the U.S. market. The company also gained from a $280 million tax benefit during the quarter. Despite strong international growth, FX headwinds remained a concern during the quarter.
On the back of another strong quarterly performance, Visa affirmed its financial guidance for the year 2015. The company expects to end fiscal year 2015 with double digit revenue growth and operating margins in the mid-60s range. [1] During the year, the company expects to pay taxes at an effective rate of about 30%, ending with cash flows in excess of $6 billion.
In this note, we take a look at the key takeaways from Visa’s earnings. We have a price estimate of $69 for Visa’s stock, which is slightly below the current market price.
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Growth In Domestic Payment Volume
Nearly half of Visa’s payment volume comes from the U.S., and the company reported an 8.7% y-o-y increase in the figure for the June quarter. The U.S. has a high level of electronic payment penetration; nearly 60% of personal consumption expenditures (PCE) in the country are from non-cash transactions. As U.S. economic growth picks up, consumer sentiment will improve, as will consumer spending relative to savings. This should help Visa maintain future growth.
Asia Continues To Fuel International Growth
Revenues from international transactions grew a solid 21% y-o-y to $1 billion during the June quarter. Much of this growth came from the Asia Pacific (APAC) market, led by the Chinese and south Asian markets. [3] Payment volumes in Asia-Pacific grew 15% y-o-y (on a constant dollar basis) during the quarter. However, foreign exchange headwinds erased some of those gains, and nominal growth from the APAC region was 7.8% during the quarter. FX headwinds also dented growth in other regions, including Latin America, the Middle East and Canada. Southeastern Europe and the Middle East also added to the uptick in revenue during the period.
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More Trefis Research
- Visa Inc. Reports Fiscal Third Quarter 2015 Earnings Results, Investor Relations [↩] [↩]
- SEC 8-K Filing, July 23 2015 [↩]
- Visa’s CEO Charlie Scharf on Q3 2015 Results, Earnings Call Transcript, Seeking Alpha [↩]