Visa Snaps Back in Fiscal Third Quarter

Wide-moat Visa V posted strong fiscal third-quarter results, with net revenue up 27% year over year and strong margin improvement. While strong year-over-year results were largely due to comparisons against the lowest point of the pandemic, we see some positive signs even after adjusting for this. But uncertainties still exist, particularly the timing and magnitude of a recovery in cross-border volumes. We will maintain our $208 fair value estimate.

Visa reports a portion of its revenue with a one-quarter lag. Given that the company fully lapped the onset of the pandemic this quarter, we think focusing on current quarter volumes is particularly important. To this end, year-over payment transaction growth in the quarter of 39% is a positive sign. While the growth in the quarter is largely due to comparisons against the nadir of the pandemic, compared with fiscal third-quarter 2019, processed transactions are up 21%. In our view, this suggests that overall transaction volume is almost fully normal at this point, and we could see further benefits, as the pandemic appears to have accelerated the long-term global shift from cash. Data the company provided on the first three weeks of July suggest further improvement from 2019 levels.

The key headwind for Visa continues to be cross-border volumes, which are particularly lucrative for the company. There were signs of improvement, with cross-border volumes in the quarter up 53% year-over-year on a constant-currency basis (excluding intra-Europe transactions, which are priced similarly to domestic transactions). However, despite the bounceback, cross-border volumes remain depressed and were down almost 20% from 2019. While we expect a full recovery in international travel eventually, travel restrictions will likely continue to impede a rapid recovery in the near term, with the rate of recovery somewhat dependent on global vaccination rates and containment of the COVID-19 virus.

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