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Visa Continues to Bounce Back in Fiscal First Quarter

Visa should be able to continue to achieve outsize growth in the near term as headwinds abate

Visa’s V fiscal first-quarter results largely maintained the trends we’ve seen in recent quarters, and were roughly in line with what we saw from peer Mastercard this quarter. We think the relatively quick recovery supports our wide moat rating and a positive view on the long-term secular trend for Visa. While some near-term uncertainty remains given the rise of new variants and the fact that cross-border volumes have yet to completely recover, we think the company should be able to continue to achieve outsize growth in the near term as headwinds abate. We will maintain our $221 fair value estimate.

In the quarter, net revenue grew 25% year over year on a constant-currency basis, driven primarily by 21% growth in switched transactions. We estimate domestic gross dollar volume in the quarter has grown at a 14% CAGR since the fourth quarter of 2019. In our view, this suggests that underlying domestic growth has actually accelerated a bit from prepandemic levels, supporting the idea that the pandemic has accelerated the transition from cash.

Cross-border volume remains the area under the most pressure, and this area is particularly important for Visa, given much higher fees for these transactions. But results in the quarter suggest ongoing recovery. Excluding intra-Europe transactions (which are priced similarly to domestic transactions), cross-border volumes grew 51% year over year on a constant currency basis. We estimate that volumes in the quarter were 101% of the 2019 level on a constant currency basis, suggesting the company has now fully offset the pandemic decline, and Visa looks to be slightly ahead of Mastercard in this regard. We continue to expect a full recovery in travel spending over time, and this dynamic could drive outsize growth for Visa over the next couple of years.

The recovery in volumes helped the company releverage its costs, with adjusted operating margins (based on net revenue) improving to 69.8% from 67.6% last year.

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