Visa Earnings: Results Hold Steady, No Signs of Consumer Spending Weakening Yet

Key Morningstar Metrics for Visa

• Fair Value Estimate: $289.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Visa’s Earnings

Overall, we think Visa’s V fiscal second quarter largely showed the company maintaining a steady path. Management has not yet seen signs that consumer spending is weakening. However, we see uncertainty ahead.

Why it matters: Net revenue growth grew 9% year over year, or 11% on a constant-currency basis. Constant-currency net revenue growth and volume metrics remained in line with what we’ve seen in recent quarters, suggesting that consumer spending remains stable for now.

• Constant currency year-over-year payment volume growth was 8% in the quarter, with transactions up 9%. Growth appears to have picked up modestly in the first few weeks of April.
• The tailwind from a bounce back in travel and cross-border volumes has been fading. Constant-currency cross-border volume excluding intra-Europe transactions, which are priced similarly to domestic transactions, grew by 13% year over year in the quarter, down from 16% in the previous quarter. We believe most of the benefit from the travel recovery has been realized, but April travel-related volume growth appears to have improved modestly.

The bottom line: We will maintain our $289 fair value estimate for the wide-moat company. We see shares as modestly overvalued.

• Visa remains tied to overall consumer spending, and particularly to some discretionary categories such as travel-related cross-border volume. Management stated that it has not seen any signs through April of consumer spending weakening materially. However, in our view, tariffs create significant near-term uncertainty going forward.
• Visa returned to modest margin improvement, with adjusted operating margins (based on net revenue) up about 120 basis points year over year. However, year-over-year client incentive growth of 15% outstripped revenue growth, highlighting how the company shares much of its scale benefits with its issuer clients.