Visa Earnings: Growth Holds Up

Visa Stock at a Glance

• Fair Value Estimate: $241
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

Visa Earnings Update

Visa V delivered solid growth and some margin improvement in its fiscal third quarter and largely maintained its recent trajectory.

We don’t see anything in the quarter that materially alters our long-term view and will maintain our $241 fair value estimate. We see shares as fairly valued at the moment.

Net revenue increased 13% year over year on a constant-currency basis, with a 9% increase in payments volume and a 10% increase in transactions. Overall, these growth metrics held roughly in line with what we’ve seen over the past couple of quarters, suggesting Visa is on a steady path.

Cross-border volume has been a major driver for Visa recently as travel spending has recovered from the pandemic-related decline, and cross-border volume remains critical due to the outsize fees Visa collects on these transactions. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 22% year over year in the quarter, representing a 10-percentage-point decline from the growth rate last quarter. We expected growth to come down as volumes converge on the prepandemic trend and appreciate that growth remains strong in an absolute sense. However, if the economy trips into recession, this could put the cross-border recovery at risk.

Excluding one-time items, operating margins on a net revenue basis improved modestly to 67.5% from 66.9% last year. Visa had been seeing some modest pressure on margins recently as the company increased spending, but this quarter suggests that issue may be abating. However, client incentives increased to 28.1% of gross revenue from 26.1% last year. As the distortions from the pandemic recede, we expect client incentives to continue to increase over time, making margin improvement on a gross revenue basis more difficult to achieve.