It has been about a month since the last earnings report for Visa (V). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Visa due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Visa's Q2 Earnings Beat Mark on Rising Payments Volume
Visa reported fiscal second-quarter 2023 earnings of $2.09 per share, which beat the Zacks Consensus Estimate of $1.97 by 6.1% and our estimate of $1.92. The bottom line improved 17% year over year.
Net revenues amounted to $7,985 million, which advanced 11% year over year in the quarter under review. The top line outpaced the consensus mark by 3% and our estimate of $7,596.9 million.
The solid quarterly results benefited on the back of higher payments and cross-border volumes and processed transactions. Steady cross-border travel growth and lower-than-expected client incentives aided the results, partially offset by higher costs.
Visa’s payments volume grew 10% year over year on a constant-dollar basis in the fiscal second quarter. Processed transactions (implying transactions processed by Visa) totaled 50.1 billion, which rose 12% year over year and beat our estimate of 49 billion.
On a constant-dollar basis, the cross-border volume of Visa climbed 24% year over year in the quarter under review. Excluding transactions within Europe, its cross-border volume (that boosts a company’s international transaction revenues) advanced 32% year over year on a constant-dollar basis.
Service revenues improved 7% year over year to $3.8 billion during the March quarter on the back of better payment volume. The metric came higher than the Zacks Consensus Estimate and our estimate of $3.6 billion.
V’s data processing revenues of $3.8 billion grew 10% year over year in the quarter under review, meeting our estimate and beating the consensus mark of $3.7 billion.
International transaction revenues advanced 24% year over year to $2.7 billion, which outpaced the Zacks Consensus Estimate by 1.7% and our estimate of $2.5 billion on higher cross-border volume. Other revenues of $551 million climbed 16% year over year, which came lower than the consensus mark of $570.6 million but beat our estimate of $514.1 million.
Client incentives (a contra-revenue item) of Visa escalated 18% year over year to $2.9 billion in the quarter under review. The metric amounted to 26.7% of Visa’s gross revenues of $10.9 billion.
Total operating expensesof $2.6 billion increased 11% year over year, lower than our estimate of $2.7 billion. The increase was due to elevated personnel costs and professional fees. Non-GAAP operating expenses escalated 13% year over year. Interest expense came in at $142 million, up 3.6% year over year.
Balance Sheet (as of Mar 31, 2023)
Visa exited the March quarter with cash and cash equivalents of $13.8 billion, which dropped from the fiscal year-end level of $15.7 billion.
Total assets of $86.8 billion increased from the 2022 fiscal year-end level of $85.5 billion.
V’s long-term debt amounted to $20.6 billion, which inched up from the fiscal year-end level of $20.2 billion.
Total equity grew from the 2022 fiscal year-end level of $35.6 billion to $38.6 billion.
Visa generated net cash from operations of $8,031 million in the six months ended Mar 31, 2023, which increased from $7,721 million a year ago. Fiscal second quarter free cash flows of $3,650 million rose from $3,222 million a year ago.
Capital Deployment Update
Visa rewarded $3.2 billion to shareholders via share buybacks of $2.2 billion and dividends of $1 billion in the March quarter. V had authorized funds of $11.8 billion remaining under its share buyback program as of Mar 31, 2023.
On Apr 25, 2023, management sanctioned a quarterly cash dividend of 45 cents per share, which will be paid out on Jun 1, 2023, to shareholders of record as of May 12, 2023.
Net revenues are estimated to register low double-digit growth in the fiscal third quarter. Client incentives are expected to remain at the upper side of the 26.5%-27.5% of gross revenues band.
Growth rate in domestic payments volume is expected to decline in the fiscal third quarter of 2023, while the strength seen in the international market will likely continue. The fiscal third quarter tax rate is expected within 19-19.5%.
Non-GAAP operating expense growth is likely to witness a moderation throughout fiscal 2023. From the expense growth recorded in second-quarter fiscal 2023, the growth of expenses on a nominal dollar basis is anticipated to decline two or three points in the fiscal third quarter of 2023. The non-GAAP operating expense growth rate in the fiscal fourth quarter is likely to face a further reduction of two to three points.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Visa has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Visa has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Visa belongs to the Zacks Financial Transaction Services industry. Another stock from the same industry, Equifax (EFX), has gained 4.6% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Equifax reported revenues of $1.3 billion in the last reported quarter, representing a year-over-year change of -4.5%. EPS of $1.43 for the same period compares with $2.22 a year ago.
Equifax is expected to post earnings of $1.71 per share for the current quarter, representing a year-over-year change of -18.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Equifax. Also, the stock has a VGM Score of F.
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