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Higher Transactions Processed to Aid Visa (V) Q3 Earnings?

Zacks Equity Research
Visa (V) Q3 earnings benefit from higher spending on its branded cards, partly offset by increase in client incentives and rise in expenses.

Visa Inc. V third-quarter fiscal 2019 earnings are likely to benefit from an upside in Data Processing Revenues. It forms nearly 35% of the company’s total revenues and is dependent on the number of transactions processed.

In the first half of fiscal 2019, revenues from Data Processing, earned through authorizing, clearing, settling, providing network access, and other services for transactions processed, rose 15%. The growth was driven by 11% increase in transactions processed.

The Zacks Consensus Estimate for revenues from this business line is pegged at $2.7 billion, indicating 13.3% year-over-year increase on 11% expected rise in processed transactions to 45.6 billion. Visa, with payments volume of 170 billion in fiscal 2018, remains ahead of other companies in the same space. Companies like Mastercard Inc. MA, American Express Co. AXP and Discover Financial Services DFS have processed transactions  of 87.5 billion, 7.7 billion and 2.6 billion, respectively.

Region wise, we expect growth in Visa’s transaction processed from Europe (expected to climb 8%), Asia-Pacific (13%), Canada (13%), CEMEA (24%), LAC (8.8%), and the United States (7.3%).

In Europe, the company has significant presence in U.K. and Ireland, and 12 other markets in which it is well positioned. In India, Visa continues to focus on growing credentials and acceptance in store and online for both consumers and businesses. On the credentials side, it continues to be the market leader in both credit and debit payment volume.

In Africa and Latin America, transaction processed is expected to grow due to the company’s partnership with Branch, the most downloaded financial app in Africa with 3 million users. Branch extends microloans and disperses them into mobile money for cash-out by recipients. With the funds being pushed to a Visa credential that sits on the phone, consumers will be able to shop online or in store or cash-out funds at an ATM.

The company’s tap-to-pay payments facility has also been a hit among users, which must have contributed to processed transactions. Visa has launched tap-to-pay transit solutions in 20 cities across 12 countries, with more than 150 projects underway. In regions where it is functional, tap-to-pay has proven to be one of the most effective ways to accelerate the shift from cash to card.

Overall, the company expects third-quarter net revenue growth to be similar to moderately better than the second quarter (net revenues up 8%). Increase in expenses is expected to be in line with second-quarter level.
Visa carries a Zacks Rank # 2 (Buy). (Read more: Visa to Post Q3 Earnings: What's in Store for the Stock?).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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