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Visa (V) Q3 Earnings and Revenues Beat on Volume Growth

Zacks Equity Research

 Visa Inc. V reported third-quarter fiscal 2019 earnings of $1.37 per share, beating the Zacks Consensus Estimate by 3.1%. Also, the bottom line improved 14% year over year.

The results were driven by growth in payments volume, cross-border volume and processed transactions.

Net operating revenues of $5.8 billion beat the Zacks Consensus Estimate by 1.7% and were up 11% year over year or 13% on a constant-dollar basis. This upside was primarily driven by an increase in all the components of net revenues such as service, data processing, international transaction revenues and others.

However, increase in client incentives, which constitute a contra revenue item, acted as a partial dampener to revenue growth.

Visa Inc. Price, Consensus and EPS Surprise

Visa Inc. Price, Consensus and EPS Surprise
Visa Inc. Price, Consensus and EPS Surprise

Visa Inc. price-consensus-eps-surprise-chart | Visa Inc. Quote

Strong Financial Performance

On a constant-dollar basis, payments volume growth in the quarter was 9% year over year. Cross-border volume growth, on a constant-dollar basis, was 7%. Visa's processed transactions increased 12% from the prior-year quarter to 35.4 billion.

Service revenues increased 10% year over year to $2.4 billion on higher nominal payments volume. Notably, other revenue components are based on the reported quarter’s activity. On a year-over-year basis, data processing revenues rose 13%  to $2.7 billion and international transaction revenues grew 8% to $2 billion. Other revenues increased 49% year over year to $342 million.

Client incentives of $1.5 billion increased 13% year over year and formed 20.9% of gross revenues.

Adjusted operating expenses increased 10% year over year to $1.9 billion, primarily due to marketing, and general and administrative costs. Interest expense decreased 17.4% year over year to $128 million.

Solid Balance Sheet

Cash and cash equivalents, and available-for-sale investment securities were $7.9 billion as of Jun 30, 2019, down 3.1% from the fiscal year ended Sep 30, 2018 levels.

Total assets were $70.2 billion as of Jun 30, 2019, up 1.5% from the fiscal year ended Sep 30, 2018 level.

Share Repurchase and Dividend Update

During the quarter, the company repurchased shares worth $2.1 billion. The board of directors paid out a quarterly dividend of 25 cents per share.

A Slew of Deals

During the quarter, Visa acquired control of Earthport and gained full ownership in early July.  The deal enables Visa to serve more than 99% of consumers and small business bank accounts in 88 countries, including the top 50 markets.

It also signed an agreement to buy the ticketing and token services business of Rambus. With this deal, Visa will be able to make the transactions more secure and easy by tokenization.

The company also announced to buy Verifi, a provider of solutions that reduce chargebacks.

Earlier this month, the company acquired Payworks, a provider of next-generation payment gateway software for the point-of-sale.

2019 Guidance

For fiscal 2019, Visa expects annual net revenues to grow in low-double digits on a nominal basis, with approximately 1.5% of negative foreign currency impact and 1% of positive impact from the new revenue accounting standard. Client incentives, as a percentage of gross revenues, are projected in the range of 21.5% to 22% (earlier 22-23%), annual adjusted operating expense is expected to increase by 10% (compared with the earlier guidance of mid-to-high single digit) and the effective tax rate is estimated between 19.5% and 20%.

The company expects annual earnings per share growth in low twenties range on a GAAP nominal-dollar basis and mid-to-high teens on an adjusted, non-GAAP basis. Both these estimates include approximately 2% (versus 1.5% as contemplated earlier) of negative foreign currency impact.  

Our Take

Visa remains well positioned for future growth on the back of its solid market position, increase in payments volume, accretive acquisitions and significant opportunities owing to its secular shift toward electronic payments. Its strong balance sheet position and vast payment network offer significant long-term growth potential.

Zacks Rank & Other Stocks to Consider

Visa currently carries a Zacks Rank #2 (Buy).

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

Some other stocks worth considering in the same space are Diebold Nixdorf, Inc. DBD EVO Payments, Inc. EVOP and Total System Services, Inc. TSS. While EVO Payments sports a Zacks Rank #1, the other two stocks carry the same Zacks Rank as Visa.

EVO Payments and Total System surpassed estimates in each of the trailing four quarters with an average positive surprise of 34.9% and 0.74%, respectively.  

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