Visa Earnings: Growth Holds Steady

Key Morningstar Metrics for Visa

• Fair Value Estimate: $260.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Visa’s Earnings

The results for Visa’s V fiscal second quarter showed the company holding steady. Following the company’s ups and downs during the covid-19 pandemic and subsequent recovery, we think it has settled into a more normalized groove. We believe this recent performance highlights the long-term secular tailwinds that will continue to drive solid growth over the long run. In our view, the combination of Visa’s wide moat and its long growth runway creates an attractive backdrop. We will maintain our $260 fair value estimate and see shares as fairly valued.

Net revenue was up 10% year over year, roughly in line with the past couple of quarters. Payments volume increased 8% year over year on a constant-currency basis, almost exactly even with the last quarter. Macroeconomic conditions are likely the biggest swing factor in the near term, but Visa appears to be on a steady course.

Cross-border volume (the most volatile area over the past few years) also signals increased stability. Constant-currency cross-border volume excluding intra-Europe transactions (priced similarly to domestic transactions) grew 16% year over year, in line with the last quarter. While growth in this area is still healthy and a bit above our long-term expectations, the recovery in cross-border volume increasingly looks to have already been realized.

Adjusted operating margins (on a net revenue basis) fell slightly to 67.3% from 67.7% last year, and management maintained its guidance of low-double-digit expense growth for the full year. On the plus side, client incentives increased only 13% year over year, reducing margin pressure on a gross revenue basis, although this is likely mainly due to the timing of new deals.