Visa Earnings: Volume Growth Picks Up Despite Toughening Economic Backdrop

Visa Stock at a Glance

• Current Morningstar Fair Value Estimate: $229.00
• Stock Star Rating: 3 stars
• Uncertainty Rating: Medium
• Economic Moat Rating: Wide

Visa Earnings Update

Visa V actually saw volume growth pick up a bit despite ongoing macroeconomic uncertainty, but outside of this, the wide-moat company largely maintained its recent path in its fiscal second quarter. While we’re encouraged by the company’s recent performance, we will maintain our $229 fair value estimate, and believe shares are currently fairly valued.

Net revenue increased 11% year over year, or 13% on a constant-currency basis. Payment volume (on a constant-currency basis) and transaction growth were 10% and 12%, respectively, with both metrics improving a bit sequentially. We’re encouraged to see the company show some momentum in the current macroeconomic environment. On the negative side, volume growth slowed as the company moved through the quarter and into April, suggesting growth might slow going forward.

Visa Lifted by Travel Spending

Coming out of the pandemic, cross-border volume has been a major engine, due to the outsize fees Visa collects on these transactions, and the exposure to travel spending. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 32% year over year in the quarter, essentially in line with the growth rate last quarter. We’re pleased to see Visa maintain strong growth in this area, but we expect growth to come down as volumes converge on the prepandemic trend. Further, a negative turn in the economy could put the recovery in travel at risk.

Operating margins (on a net revenue basis) held flat at 66.8% compared with last year. While the company is seeing solid growth, we think that is being offset at the moment by some inflation in its cost base, and investments to spur future growth. Longer-term, we think the scalable nature of the business should allow for margin expansion over time. However, client incentives increased to 26.7% of gross revenue, and appear to have resumed their upward path. This could limit margin improvement on a gross revenue basis.