A continued recovery in international travel—and spending—drove
Visa
to a better-than-expected quarter. The credit-card company’s earnings, disclosed Tuesday afternoon, beat Wall Street estimates but growth in payments volume slowed from recent quarters.
Visa stock (ticker: V) was down slightly in after-hours trading on Tuesday.
Visa said it brought in $8.1 billion in revenue in its fiscal third quarter, which corresponds to the calendar second quarter, matching Wall Street analysts’ average estimate. That was up 12% from a year earlier, versus growth of 11% in the prior quarter.
Net income was $4.5 billion, up 7% and ahead of the consensus estimate by about $100 million. That’s a net profit margin of 56% for the quarter. Visa’s $2.16 in adjusted earnings per share were up 9% year over year and beat the $2.11 consensus estimate.
“Consumer spending remained resilient, driving growth in payments volume and processed transactions,” CEO Ryan McInerney said in a statement. “Cross-border volume continued to be a tailwind, fueled by travel growth from the ongoing recovery and summer tourism.”
Visa’s quarterly payments volume was up 9% year over year—versus 10% growth in the prior quarter—while analysts had been expecting 8% growth. Cross-border transaction volumes were the biggest driver there, growing 17% and matching the consensus estimate. In the previous quarter, the volume of cross-border transactions, which are more lucrative for Visa, jumped 24% in a continued rebound from the pandemic.
Visa recognizes revenue on payments processed during the prior quarter, so the volume growth in the fiscal third quarter will determine the coming period’s financial results.
Visa’s core business model is taking a percentage of each transaction processed in exchange for connecting consumers, businesses, and financial institutions. That makes its revenues a function of both the number of transactions and the average value of each swipe.
Visa CFO Vasant Prabhu said Tuesday that the U.S. transactions growth was 8% year over year, matching its prepandemic pace of growth, but that average ticket sizes were down 2%, resulting in a 6% increase in U.S. payments volume—relatively slow growth for Visa. He pointed to lower prices for fuel as the biggest driver of the decline in ticket size, while overall consumer spending remains healthy.
“I think the U.S. consumer is stable, despite everybody’s anxiety,” Prabhu told Barron’s. “We have seen a little bit of a move down in ticket size. Everything we look at says it’s moderating inflation, in particular, fuel inflation, that’s [behind that.]”
Prabhu said that a few other categories that saw big spikes in inflation in the year-ago period, such as airfares, also saw declining ticket sizes in the reported quarter.
U.S. payments volume was up 54% compared with 2019 levels, versus 43% for international payments. There’s plenty of room for cross-border travel to return to prepandemic levels in Asia—most of all China—and some room for inbound travel to the U.S. to recover, Prabhu said. That will be a continued tailwind to cross-border payments volume growth in coming quarters.
Visa generated $5.5 billion in free cash flow in the quarter, up 10% from a year earlier and 68% of the company’s revenue for the quarter. The company bought back $3 billion of stock in the quarter, at an average cost of $229.19. The stock closed at $238.69 on Tuesday. Visa also spent $937 million on dividends in the quarter and added $500 million to a litigation escrow account.
Prabhu is set to depart the company this fall, to be replaced by Chris Suh, who was previously the CFO of Electronic Arts (EA). McInerney stepped into the CEO role in February.
Visa and
Mastercard
stocks have both returned about 16% so far in 2023, trailing the S&P 500 by nearly four percentage points. Barron’s has written favorably about Visa stock, calling it undervalued relative to its own history and the market.
Mastercard next reports quarterly results on Thursday morning.
Write to Nicholas Jasinski at [email protected]
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