Why Is Visa Down After Crushing Earnings Expectations by 16%?

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) had fallen 128 basis points by early afternoon Friday. The down session ends a flat week for the index amid a myriad of earnings reports, international tensions, and important data releases on the housing market.

One drag on the Dow this morning is Visa (NYSE: V  ) , the index's highest-weighted component

Visa beats and the market retreats
Visa reported its fiscal second-quarter earnings Thursday evening after the closing bell. The company crushed Wall Street expectations of $2.18 in earnings per share, posting $2.52. This represents a 31% year-over-year increase.

Excluding a tax benefit of about $200 million, EPS still reached still a very solid $2.20 per share, a 15% year-over-year improvement.

The company also reported healthy revenue growth at 7% and strong operational performance, citing currency fluctuations and political tensions with Russia as two of the primary weights on performance. According to the company's press release and conference call, the rest of the business was driving forward like a well-oiled machine.

That's all great news, right? So why did the Visa's stock open 3.6% lower Friday morning and then run to a loss of nearly 4% by 1 p.m. EDT?

The markets don't care about now. They care about tomorrow.

Visa. Its everywhere you want to be. Like on this ski lift.

Tucked in behind the strong quarterly performance, Visa made some changes to its 2014 outlook that spooked investors.

First, that strong revenue growth is actually slowing, moving from 11% to the 7% reported last night. Second, lowered its revenue growth guidance for the second half of the year from 10-13% to 10-11%.

As a long-term investor, should you be worried?
The driver behind the reduced revenue outlook is primarily a stronger U.S. dollar impacting nominal growth versus constant growth.  On a constant growth basis revenue grew at 9% this quarter. Currencies fluctuate. It's a reality of doing business internationally. I don't see this as being a major issue for Visa over the long term at all.

Taking a step back, does a changed outlook of just 2% on the high side for the next two quarters, without any change to the bottom of the range estimate, really mean that Visa is worth 4% less today than it was yesterday?

Absolutely not. 

If you want to talk growth and Visa, then you need to think much bigger. Russia isn't the key to Visa's future growth, and currency fluctuations are not going to make or break this $127 billion market cap behemoth.

Think about the 2.5 billion people globally who do not have access to a savings account. Or that even in 2014, 85% of the world's transactions are done with cash -- 85%!

Or consider the truly gigantic growth opportunities Visa is exploring in Africa, Asia, and South America

Seriously, take the long view
Visa, like any company, faces risks. Bitcoin and its block-chain technology could one day become a cheaper, safer alternative to Visa's payment network (it's not there yet, but it's certainly a risk). Changing regulations, competitors, and merchant expectations could also easily erode some of Visa's massive market share

But a slightly lowered outlook for the top of the revenue estimate range over just the next six months is pretty insignificant. Visa's endgame is much, much bigger than that.

If you're long Visa, or think you may want to buy some shares, consider this your buying opportunity.

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