Visa Holds Up Relatively Well in Fiscal Q1 2023

Visa Stock at a Glance

• Current Morningstar Fair Value Estimate: $229
• Stock Star Rating: 3 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable

Visa Earnings Update

Visa’s (V) fiscal first-quarter results largely mirrored what we saw from its peer Mastercard. Both companies are still enjoying a bit of a boost from the recovery in travel spending, but the impact is fading. Although there have been concerns about a potential macroeconomic downturn and the impact on consumer spending, we think volume has been holding up reasonably well. We will maintain our $229 per share fair value estimate for the wide-moat firm, and we view the shares as being fairly valued at this point.

Net revenue increased 12% year over year, or 15% excluding currency impacts, during the quarter. Payment volume increased 7% when excluding currency impacts, while transactions grew 10%. Like Mastercard, Visa is seeing volume growth slow, but, in our view, the growth rate remains solid.

Coming out of the pandemic, cross-border volume has been the biggest driver for the business, due to the outsize fees Visa collects on these transactions, and the exposure to travel spending. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 31% year over year in the firm’s fiscal first quarter.

This represents a significant comedown from recent quarters, but that was expected as we moved deeper into the recovery in travel. The cross-border rebound has been a material tailwind for Visa, and that tailwind would eventually diminish. Further, a negative turn in the economy could put the recovery in travel at risk. On the positive side, the reopening of China’s borders could be a significant positive on this front.

Excluding one-time charges, operating margins (based on net revenue) declined modestly to 68.4% from 69.8% last year. Management pointed to increased personnel expenses as the culprit, with the company making some investments for growth.