Visa Earnings: Growth Slows Modestly

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

Visa’s V fiscal first-quarter results showed growth slowing a bit but remaining solid. We think that as postpandemic tailwinds abate, the company’s growth will move more in line with our long-term expectations, and this quarter supports that view. While growth may moderate near-term, we still see the long-term outlook for Visa as quite bright, given the company’s wide moat and ongoing secular tailwinds. We will maintain our $260 fair value estimate and see the shares as fairly valued.

Net revenue increased 9% year over year on a constant-currency basis, down from the low-double-digit growth Visa saw in most of fiscal 2023. Payment volume in the quarter increased 8% year over year on a constant-currency basis, and transactions were up 9%.

Cross-border volume remains a key area to watch, in our view. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 16% year over year in the quarter, down from 18% last quarter. We expected growth to continue to moderate as we move past the postpandemic bounceback in travel. While growth is this area is still healthy, this tailwind increasingly looks to be subsiding.

Excluding one-time items, operating margin (on a net revenue basis) improved to 69.1% from 68.4% last year. Despite somewhat lower growth, Visa continues to see some scale benefits. However, management’s guidance suggests expenses will grow in line with net revenue for the full year.

Client incentives increased to 28.2% from 26.0% last year. With incentives resuming their upward march now that pandemic-related distortions have tapered off, margin improvement on a gross revenue basis will be much harder to come by.