Visa Inc Earnings: Can the Card Giant Charge Higher?

On Thursday, Visa (NYSE: V  ) will release its quarterly report, and investors have started to get more comfortable with the credit card network's prospects going forward. Even as Visa continues to hold its own against rival MasterCard (NYSE: MA  ) , it's also looking more closely at electronic-payments processors as well, with its latest move going up directly against eBay's  (NASDAQ: EBAY  )  PayPal unit.

Visa has an enviable business model, as its collection of fees from merchants and card-issuing financial institutions earns revenue without taking on a single penny of credit risk. Yet Visa and MasterCard have both seen the emergence of electronic payments systems like PayPal as a long-term threat to their business, as eliminating card networks as an intermediary would create greater profit opportunities for merchants and consumers alike at Visa's expense.

Can Visa successfully hold off the tide of those hungry for a piece of its business? Let's take an early look at what's been happening with Visa over the past quarter and what we're likely to see in its report.

Stats on Visa

Analyst EPS Estimate

$2.10

Change From Year-Ago EPS

11.7%

Revenue Estimate

$3.15 billion

Change From Year-Ago Revenue

5%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Are Visa earnings poised to climb?
In recent months investors have had mixed views on Visa earnings, cutting June-quarter estimates by almost a dime per share but raising full fiscal-year projections by about 1%. The stock has gained ground, rising about 10% since mid-April.

Visa's March quarter results gave investors a solid basis for bullishness about the stock, even though shares initially fell on the news. Visa posted huge gains in net income that were driven only partially by a one-time tax benefit. Overall, revenue climbed 7% and helped send pre-tax profits up 11%, and although a stronger dollar weighed on results, payment volumes climbed.

Moreover, Visa reiterated that its full-year revenue growth would likely come in up 10% to 11%, reflecting expectations of continued economic strength overall. Some wanted even stronger growth, though, and geopolitical tension in Russia posed a threat to Visa and MasterCard as Russia threatened to retaliate by imposing punitive requirements for card networks there.

Investors gave a sigh of relief later in the quarter when Visa managed to resolve its potential dispute with Russia. The concessions could lead to Visa and MasterCard establishing greater operations in Russia in order to ensure that payments can be processed within the nation's own financial system rather than subjecting those payments to potential economic sanctions, but that still marks substantial progress from what would have been more draconian restrictions against Visa and its peers.

But Visa has also quietly made a push toward defending its turf against eBay's PayPal. Visa bought PayPal competitor CyberSource back in 2010, and since then Visa has seen the number of CyberSource transactions nearly triple to 3.8 billion in the first half of the current fiscal year. Just last week Visa got more aggressive, launching its Visa Checkout payment option to simplify card-based online transactions. Visa has to be somewhat careful in dealing with PayPal, as many PayPal customers use Visa cards to fund transactions. But overall, Visa would benefit from replacing PayPal as an intermediary in those transactions.

At the same time, some believe that Visa should make the most of its leadership position by boosting what it charges merchants. With top market share, Visa could raise its rates while still arguing that its higher customer counts justify merchants paying up for access. Yet Visa seems reluctant to do so, perhaps because it fears greater regulatory scrutiny, and perhaps because it doesn't want competitors getting a foot in the door to challenge its leadership.

In the Visa earnings report, watch to see which areas of the world are performing the best for the card network. As Visa aims to keep MasterCard at bay while taking on PayPal as well, investors want to see Visa make the most of the huge opportunity to capture even more of the total volume of consumer spending worldwide.

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