The Pandemic Remains a Problem for Visa

Visa’s V fiscal fourth-quarter results largely mirrored what we saw from peer Mastercard earlier in the day. While there are positive trends in parts of its business as quarantine efforts ease, the pandemic is still a significant weight on overall results, with continuing major declines in revenue and margins. Visa finished the fiscal year roughly in line with our expectations, and we will maintain our $171 fair value estimate and wide moat rating.

Net revenue was down 17% year over year, but transaction volumes for Visa and the industry have bounced back fairly quickly and steadily since April lows. Payment volume in the quarter was up 4% on a constant-currency basis, similar to the growth reported by Mastercard. Visa announced some October metrics that suggest the positive trend continued following the end of the quarter. For domestic transactions, the long-term secular trend toward electronic payments appears to be reasserting itself, and the worst seems to be past unless the pandemic takes a sharp negative turn, although we think macroeconomic conditions could delay any return to fully normalized growth. Longer term, there could be some positives for Visa, as the pandemic appears to be accelerating the shift from cash, and we think new payment habits developed during the pandemic could endure.

While the picture for domestic transactions is brightening, Visa collects much higher fees for cross-border transactions, making the company’s profitability heavily reliant on cross-border volumes. The dramatic fall-off in travel since the start of the pandemic has only partially been offset by an increase in e-commerce, and there is little sign of an improving trend, with cross-border volume down 29% year over year in the quarter.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.