Visa Earnings: Quarter Largely Maintains Recent Trends

Key Morningstar Metrics for Visa

• Fair Value Estimate: $241.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Visa’s Earnings

We think Visa’s V fiscal fourth quarter largely continued recent trends. Growth remains healthy as consumer spending appears to be resilient, and the company is still seeing a modest benefit from a bounce back in cross-border spending. Overall, we don’t see any major surprises, and company guidance suggests management believes recent trends will continue into fiscal 2024. We will maintain our $241 fair value estimate for the wide-moat company. We see the shares as fairly valued at the moment.

Net revenue was up 11% year over year, or 10% on a constant-currency basis. Payments volume was up 9% in constant currency, in line with growth in the previous quarter, and transactions increased 10%, also in line with last quarter. Overall, results suggest payment trends are holding steady.

Cross-border volume has recently helped to drive outsize growth for Visa, as travel spending has recovered from its pandemic-related decline. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 18% year over year in the quarter. While this is still a healthy rate, growth has come down quickly over the past few quarters as the company has started to converge on the prepandemic trend, and the tailwind appears to be coming to an end.

Visa saw some modest scale benefits in the quarter, with adjusted operating margin (based on net revenue) improving to 66.0% from 65.4% last year. However, the company also continues to see a strong uptick in client incentives, which increased 20% year over year. We believe Visa will see only very modest margin improvement on a gross revenue basis over time, as it will likely share most of its scale benefits with issuer clients in the form of higher incentives.