Can Visa Repeat Its Strong Fiscal 2019 Revenue Growth In 2020?

Visa (NYSE: V) closed its fiscal year 2019 (ending September) on a strong note with net revenues growing by 11.5% to $23 billion despite macroeconomic uncertainties surrounding the U.S.-China trade deal as well as Brexit. The company generates nearly 40% of its network volumes from the U.S. and moderate growth in domestic retail sales has been the key driver of Visa’s strong FY2019 results. Trefis highlights key components of Visa’s revenues and the trends in underlying drivers in an interactive dashboard along with our expectations for FY 2020. Based on our forecast for each of Visa’s revenue streams, we believe that the payment giant’s top line will continue its strong trajectory to grow nearly 10% in FY 2020.

Growth in domestic network volumes key to Visa’s strong performance

• Visa’s network volumes comprise of payments volume and cash volume. The dollar value of purchase transactions undertaken using Visa-branded cards is recognized as payments volume and all cash access transactions are recognized as cash volume.
• The company reports its network volumes across six geographies: the U.S., Europe, Asia Pacific, CEMEA, Latin America, and Canada.
• The U.S., Europe, and Asia Pacific regions contribute nearly 40%, 20%, and 21% of Visa’s total network volumes, respectively.
• In 2019, the 3% growth in Visa’s total network volumes was primarily driven by an 8% growth from the U.S.
• Canada and the Middle East also observed low single-digit growth in network volumes.
• However, Europe and Asia Pacific regions observed declines, majorly due to strong U.S. dollar.

Visa’s Revenue growth likely to remain strong in fiscal 2020, but December tariffs could hamper consumer confidence

• The company’s management has guided for a low double-digit growth in net revenues for fiscal 2020, similar to the prior year.
• However, we remain wary of near-term headwinds from the 5% increase in tariffs on Chinese imports scheduled for December 15.
• Though the October tariffs were put on hold due to ongoing phase 1 of negotiations between the U.S. and China, investor sentiments remain low from the recent WTO ruling which went in favor of China.
• Retaliatory measures by China could further delay any interim deal between the two nations, which could likely impact consumer confidence in the U.S.
• As we pointed out, Visa’s network volumes largely depend on domestic retail sales. And low consumer confidence during the first quarter would likely weigh considerably on the company’s revenues for fiscal 2020.
• Taking everything into account, we expect Visa to report net revenues of $25 billion in fiscal 2020 – at the lower end of the guidance range.
• We estimate full-year GAAP EPS for Visa to be $5.94. This EPS figure coupled with a forward P/E multiple of 30, works out to a price estimate of $180 for Visa’s stock (shows cash and valuation analysis).

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