Visa Earnings Show Continued Strong Growth; Stock Slightly Undervalued

Visa continued to enjoy strong growth in its fiscal fourth quarter. Overall, while the company’s near-term future is somewhat tied to the direction of the economy, we think favorable long-term secular trends and an ongoing bounce back in travel-related spending put the wide-moat company in a relatively strong position. We will maintain our $229 fair value estimate and see Visa’s stock as modestly undervalued.

Net revenue increased 19% year over year, or 23% on a constant currency basis. Purchase volumes in the quarter were up 10% on a constant currency basis. This does represent a slight deceleration from the last quarter, but we consider this to be a solid result, especially considering the drag from the decision to exit Russia.

Cross-border transactions have been a major driver of the business over the past couple of years, given the pandemic impact on travel and the relatively large fees Visa collects on cross-border transactions. This has been a significant positive for Visa in recent quarters as travel-related volumes have recovered. Constant currency cross-border volume excluding intra-Europe transactions (which are priced similarly to domestic transactions) grew 49% year over year in the quarter, basically maintaining the pace of growth Visa has seen the last few quarters. We continue to expect a full recovery in travel spending over time, and comparing current travel-related volumes to the 2019 level suggests there are still benefits for Visa ahead.