In Q1 2023, Visa reported net revenues of $7.9 billion, up 12% y-o-y. This growth was driven by year-over-year growth in payments volume, cross-border volume, and the number of processed transactions.
Note: Visa's FY'22 ended on September 30, 2022. Q1 FY'23 refers to the quarter that ended on December 31, 2022.
Due to the impact of the Covid-19 outbreak and a broader economic slowdown on consumer spending and the global payments processing industry, Visa's top line has suffered in recent quarters. The company derives around 27% of its revenues from international transactions. Travel bans and widespread panic due to the coronavirus outbreak severely impacted this revenue stream in 2020. Further, lower consumer spending negatively impacted the transaction volume, leading to lower data processing fees - the stream contributes around 35% of the company’s revenues. While the company’s net results for Q1 and Q2 saw some negative growth, its Q3 and Q4 results witnessed strong growth in all the revenue streams driven by a recovery in consumer demand and relaxation in Covid-19-related travel restrictions. It resulted in full-year 2021 net revenues of $24.1 billion - up 10% y-o-y. The growth continued in 2022, with net revenues increasing 22% y-o-y to $29.3 billion.
Below we look at the key drivers for Visa, which present upside or downside to our price estimate for the company's stock.
Visa is the largest global electronic payment solutions company in the world. It provides a wide range of products and services to support credit, debit, and related card solutions for institutions in over 200 countries. The company generates revenue by charging fees on transactions and payment volume. Visa processed more than 192.5 billion transactions and $11.6 trillion of payments volume in 2022.
Visa charges its customers for providing transaction processing and other services, generally on a per-transaction or percentage-of-transaction basis. Accordingly, the company's revenues are primarily impacted by the number of transactions it processes and the gross dollar volume purchases made using its cards.
Visa's revenues primarily come from the following sources:
Data processing revenues are earned for authorizing, clearing, settling, processing transactions, and other maintenance and support services that facilitate transactions between Visa's customers. Data processing revenues are based on information gathered from VisaNet, its global processing platform, which provides transaction processing services by linking issuers and acquirers.
International transaction fees are assessed to customers on transactions where the cardholder’s country differs from the merchant’s. International transaction revenues are generally driven by cross-border payment volumes, which include single-currency transactions and currency conversion activities for transactions involving more than one currency.
Assessment revenues are earned from customers for their participation in card programs carrying the Visa brand. Service revenues are assessed based on a pricing methodology applied to the payment volume.
Other revenues consist primarily of optional services or product enhancements, such as extended cardholder protection, concierge services, cardholder services, and fees for licensing.
The global market for cashless payment solutions, such as credit and debit card transactions, has grown rapidly, particularly in emerging markets. Africa has the largest percentage of people using mobile banking. Similarly, Americans are the highest number of non-cash users. A research report by MasterCard indicated that in 2014, non-cash penetration was around 44% of total Personal Consumption Expenditure. This indicates that consumers spend a significant amount through cards rather than cash or checks. The trend is only expected to continue. Outside of the U.S., non-cash penetration is much lower, but the use of cards is expected to increase at a higher rate in emerging markets than the mature markets.
Visa has begun offering more services that will enable the payment of bills from mobile devices. Mobile phone payments are gaining rapid popularity, coinciding with the surge in smartphone sales. An increasing number of smartphones manufactured now utilize near-field communication (NFC) chips, which facilitate mobile payments.