The big banks all reported earnings a few weeks ago, but there are still some smaller financials reporting results that are worth paying attention to.
In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss earnings from Visa (NYSE: V), Ellie Mae (NYSE: ELLI), and SVB Financial (NASDAQ: SIVB) and what investors should know about each one.
A full transcript follows the video.
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This video was recorded on Oct. 29, 2018.
Jason Moser: Let's take a moment and look back at the week that was in earnings. Earnings season is still going strong. We had a few companies that we keep on our radar here that announced last week. We'll go ahead and open with Visa. I'll just give you my quick takeaway looking at it. You don't really want to read too terribly much into what this company is doing because it's kind of an "if it ain't broke, don't fix it" situation. If you look at Visa, payments volume was up 11%. Transactions were up 12%. We talked about this before, they did raise the dividend prior to the announcement. I for one have been critical that they should raise their dividend more when you look at the amount of money they've spent on share repurchases vs. what they've given shareholders as dividends. But it's still working out either way. They're bringing the share count down. What stood out to you in the quarter?
Matt Frankel: Well, a 34% jump in earnings. A lot of that is tax reform, but not as much as you might think. The 12% boost in revenue that you just mentioned was really what stood out to me. That's with some foreign exchange headwinds, as well. That's the impressive growth. The revenue growth is the really impressive thing to notice with pretty much all of these financial earnings since we're still less than a year in from tax reform.
Visa is still growing at a double-digit rate. They're anticipating growing at a double-digit rate. That's another company I had a chance to briefly speak with at Money. They couldn't stop talking about how much untapped opportunity there is, especially in overseas markets. They mentioned something like 70% of transactions still take place in cash. If you think that the card market is getting saturated, think again. There's still a lot of runway here.
Moser: I'm sure I've mentioned it before, but in the time we lived in Egypt for three years in the early 2000s, and then onward in Kazakhstan, those were two economies that ran so much on cash. They just didn't have that infrastructure yet. When you look at it from a global perspective, you certainly do understand the opportunity that still exists, how many dollars are flowing through those networks today and how many will be flowing through them in the next 10 years. It makes companies like that so attractive.
Silicon Valley Bank, a company that most of our listeners might not be as familiar with, but you are familiar with it. Tell me what your takeaways from the quarter were.
Frankel: They beat on earnings, but the stock plunged right after the report. It kind of looks puzzling at first, but when you dig into it, this is a bank that has been a beneficiary of the booming economy of start-ups and things like that in Silicon Valley. Because of their relationship with all the start-ups and venture capital out there, they get a big low-cost deposit base, which has been growing rapidly. This quarter, the deposit growth was just about 2%, which is not as good as investors were hoping for. Interest margins, because they have a big low-cost deposit base and rates are rising, everyone wanted to see margins expand a little more than they did. I think they only expanded by about three basis points. While on the surface, it looks good, and the bank is still growing at a pretty impressive level, the numbers just weren't quite what investors were looking for.
Moser: It happens. That happens.
Frankel: It does.
Moser: Another one, I got a few questions on Twitter last week about this one, so I want to make sure we give it a little bit of attention. Ellie Mae, a company I'm a big fan of, I know a lot of our members and listeners are fans of it, too. The stock just got shellacked after earnings came out last week. It fell somewhere in the neighborhood of 17-20%. I think this is one where the bark was much worse than the actual bite. I don't think things are nearly as bad as that sell-off would have you believe.
SVB Financial provides credit and banking services to The Motley Fool. Jason Moser owns shares of Ellie Mae and Visa. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae and SVB Financial Group. The Motley Fool owns shares of Visa. The Motley Fool has a disclosure policy.