Right now, little seems to be able to slow down the world's largest payments network. A new CEO comes in and immediately faces a series of questions and concerns? No problem. The company must seamlessly integrate its European sister after a company-transforming acquisition? Of course. And, just for good measure, why don't we lower the total estimated integration costs while we're at it? The company faces an increasing number of fierce competitors amid a rapidly evolving payments landscape? No worries.
Investors can relax after another quarter brings yet another stellar performance from Visa Inc (NYSE:V). Looking over the latest quarter for the payments network mega cap, there is hardly one metric or number that should elicit so much as a raised eyebrow of concern from investors. Net operating revenue was $4.6 billion, a 26% increase year over year. Total payment volume was $1.86 trillion, a 38% increase year over year. Once the acquisition of Visa Europe is accounted for, processed transactions grew 13% over the prior year's quarter. Bottom-line growth was as impressive as top line. Excluding special items related to the acquisition of Visa Europe, both EPS and net income increased 26% year over year.
The strong quarter pushed Visa's stock price to new all-time highs and is now up 28% year to date. The company just continues to grow using an assortment of solutions from its toolbox and always seems to know exactly what tool to use in each situation. Let's take a closer look to see how the latest quarter's results were powered by cooperation, expansion, integration, and execution.
Cooperation: Visa partners up to broaden its reach
It's hard to believe that just about one year ago, former Visa CEO Charlie Scharf was publicly lobbing verbal barbs toward PayPal Holdings Inc (NASDAQ:PYPL) over the company's business practices. What a difference a year makes!
This conference call, new Visa CEO Al Kelly proudly talked about how Visa was "very pleased" to extend its partnership with PayPal to its European clients and went out of his way to call PayPal a "really terrific partner." Earlier in the year, Visa and PayPal had already expanded their partnership to include Visa's Asia-Pacific area as well. Suffice it to say, the two seem to be happy with their previous arrangement.
The deal covers a lot of ground, including allowing joint account holders to use their PayPal accounts to fund their bank accounts over Visa's network, enabling the use of Visa Checkout at all of PayPal's Braintree merchants, and allowing PayPal to issue its own debit card in Europe. Better yet, the PayPal partnership comes at little cost for Visa.
But PayPal is far from the only partnership Visa is open to these days. Visa is also working with Klarna, a private fintech company offering consumers credit at the point-of-sale. Visa also discussed its recent work with thirteen partners to pursue potentially lucrative B2B opportunities. Kelly made it clear there is a bigger picture for all these different partners, saying they were "part of a global strategy to open up our ecosystem and support a broad range of new partners who are helping to redefine and enhance the purchase experience for consumers online and in mobile environments."
Expansion: Visa pursues growth in China and India
The big announcement was that Visa finally filed an application with the People's Bank of China to operate as a payment network within the world's most populous country. For the past two years, Visa has been seeking clarifications on the requirements the Chinese government first provided foreign credit card networks in 2015. While filing an application is only the first step in the company's process to operate in China, it is an important milestone nevertheless.
In what might have been the year's biggest understatement, Kelly said digital payments were making "steady progress" in India despite the country's recent remonetization. During the quarter, Visa saw total payment volume grow 80% and processed transactions more than doubled in the country. Kelly said Visa has found some success using an interoperable QR-code system, because it provides a "low cost, low hassle, low friction" way to enable merchants to sign up. Later Kelly added that "it is very, very early in the payments maturation curve for India."
Visa's opportunities in the world's two most populous countries are simply huge and can hardly be overstated.
Integration and execution: Visa Europe a perfect fit
Next quarter will mark the first time the prior year's numbers will include Visa Europe. With almost a full year together, it is remarkable how well the integration has gone to date. In his prepared remarks Kelly said the integration was "progressing well" and "on track". But, once again, that's an understatement.
Visa originally guided for the total costs of the integration to be between $450-$500 million over three years. In previous conference calls, when asked why so little had been spent relative to guidance, management stated they only expected to spend $80 million this year toward the integration. During this quarter's conference call, CFO Vasant Prabhu guided this year's spending down to $60 million. It would now seem a good bet that total integration costs will be at the low end of management's previous guidance or that the guidance, itself, could be revised downward in the future.
Kelly said the company was currently "well underway" toward migrating the European systems onto the company's global authorization clearing and settlement systems. He added that Visa's U.K. data centers were upgraded on schedule and that client migration to the new systems should begin by the end of next fiscal year. The migration to Visa's global system is important, Kelly explained:
"In moving our European clients to VisaNet, we can provide enhanced network capabilities, greater scale, resilience and additional levels of cybersecurity that will benefit our clients and certainly be more efficient in the long term."
With more partners and an expanded presence in Europe and Asia, Visa is truly everywhere you want to be. But, for investors, the place they should want Visa the most is in their portfolios.