Still Signs of Life at Visa

Credit card king Visa (NYSE: V  ) reported fourth-quarter earnings yesterday that met analyst expectations, more or less. There weren't any big surprises … revenue grew, adjusted net income continued to chug along, and transaction volume's doing just fine. Apparently people are still spending money, although at the rate things have been progressing lately, I'm not quite sure how.

Adjusted net income came in at $448 million, or $0.58 per share, up from the adjusted $196 million earned in the same period last year. Revenue jumped 17%, to 1.7 billion. Visa wasn't a public company last year, so per-share comparisons aren't applicable.  

Net income was adjusted due to one-time payments to Discover Financial (NYSE: DFS  ) and American Express (NYSE: AXP  ) after settling on a suit where Visa and MasterCard (NYSE: MA  ) were accused of bullying banks into issuing only their cards, which apparently doesn’t sit well with competitors.

Payment volume during the quarter grew 15% to $699 billion, while total volume (which includes cash volume) grew 19% to $1.1 trillion … good, but perhaps near the bottom end of where investors set their lofty expectations.

And how about those expectations? Management now expects revenue growth to come in between 11% and 15% through 2010, with adjusted earnings still growing 20% or greater.

That's where things could get dicey for Visa. By most accounts, shares are expecting nothing less than those stellar expectations being met. In other words, much of the future success is already baked into the share price.

With those expectations in mind, what investors should be asking is, "Great, but what if …" And from an investing standpoint, that's what doesn't make Visa the most attractive investment out there. You can choose whatever that "what if" category might contain: a massive drop off in consumer spending (good chance), a drastic pullback by banks issuing credit to consumers (already happening), and a general avoidance of debt-related purchases (already happening), to name a few.

That's not to say Visa's a waste of your time … it's a fantastic company with one of the strongest franchises in the world. The real question is, at what price?

Only a handful of months into life as a public company, our 120,000-plus CAPS universe gives Visa a four-star rating (out of five). During these panicky market days, that's quite a seal of approval. Care to share your thoughts? Click here to join CAPS and tell everyone what you think.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Discover Financial Services and American Express are Motley Fool Inside Value picks. The Fool owns shares of American Express and has a disclosure policy.


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  • Report this Comment On October 30, 2008, at 3:27 PM, dosiaw wrote:

    Don't forget that Visa (and same is true for Mastercard) is not just profiting from all the credit card transactions but also making money on all the branded DEBIT CARD purchases. Are you saying people will convert to all-cash purchases? What's next, barter?!

  • Report this Comment On October 30, 2008, at 4:07 PM, milanar wrote:

    Coins replaced barter, paper money replaced coins, plastic in its debit cards incarnation was natural evolution of paper, which by the way even in Visa home turf in US is relavitely new. Secular trend from cash to plastic will deny materialization of all imaginable "what ifs" and the most hideous case of "what ifs" all together might slowdown Visa's growth to the level of "just" great rather then spectacular.

  • Report this Comment On October 30, 2008, at 4:34 PM, Azcherrie wrote:

    I use my business Visa for everything and love it! I use it for everything and anything business. Trips, vehicle sticker renewals online (DMV), sometimes - fuel. Office supplies, pc purchases, holiday gifts for employees, work clothes, kitchen goodies for office, the list goes on and on. When the boss leaves, he takes his business Visa. Less cash usage and just good old Visa. Our bank has Visa on its debit card logo. More, usage. I don't know anything about the "credit crunch" we always paid our bills on time, we are debt free. Life is good, and when its not good....we can shut the business down on a dime.

  • Report this Comment On November 05, 2008, at 3:16 PM, tradingnewbie wrote:

    We invested in Visa at the IPO because we were already aware, as a small business that 90% of our customers were using Visa for their purchases - especially online, where retail shopping has moved. In addition, we use Visa ourselves for all of our work expenses and home expenses (different accounts, obviously). Never any problems here or overseas. If you've shopped online lately, you'll notice that most sites pop Visa up as the auto choice for payment. Now, with the Visa WaveandPay for city commuters, we think it's going to become even more the ubiquitous choice, debit and credit, for consumers.

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