Visa Earnings: Growth Slows a Bit

Key Morningstar Metrics for Visa

• Fair Value Estimate: $272.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Visa’s Earnings

As Visa V has moved past its post-pandemic tailwinds, we think growth has returned to normal levels, and we see the macro environment as the biggest swing factor in the near term. While some growth metrics slowed modestly in the fiscal third quarter, we don’t think this marks a significant change, and we continue to see the company’s path forward as relatively stable. We will maintain our fair value estimate of $272 per share, and see shares as roughly fairly valued.

Net revenue grew 10% year over year. Constant-currency payment volume growth for the quarter was 7.4% year over year. Payment volume growth had been in the range of 8%-9% over the past four quarters. Management attributed the slowdown partially to some softness among lower-spending consumers. Transactions growth was 10%, in line with results over the past few quarters.

Cross-border volume has been the main source of volatility over the past few years, with the crash during the pandemic giving way to abnormally high growth more recently as travel recovered. However, we’ve seen signs that this tailwind is tapering off, which this quarter further confirmed. Constant-currency cross-border volume, excluding intra-Europe transactions—priced similarly to domestic transactions—grew 14% year over year, down a bit from 16% in the last quarter. While growth in this area is still healthy in an absolute sense, the recovery in cross-border volume looks to be running out of steam.

Adjusted for one-time items, operating margins (on a net revenue basis) were 66.9%, compared with 67.5% last year. While expense growth has outstripped revenue growth in the last two quarters, management expects that to reverse in the fiscal fourth quarter. Client incentives grew only 11% year over year, reducing margin pressure on a gross revenue basis.