Shares reacted negatively when Visa Inc (NYSE:V) reported its 2018 first-quarter results last week, but unless they were simply following the broader market's dip, it's hard to understand why. The company's earnings were nearly flawless, as the company's spoiled shareholders have come to expect.
For the quarter, net revenue rose 9% year over year to $4.86 billion, and adjusted earnings per share grew 26% to $1.08. The strong revenue and earnings growth was powered by a 12% increase in payments volume to $2.03 trillion and a 9% increase in total transactions to 44.6 billion.
|Visa Metrics||2018 Q1||2017 Q1||Change|
|Net revenue||$4.86 billion||$4.46 billion||9%|
|Total transactions||44.6 billion||41 billion||9%|
|Total cards||3.21 billion||3.08 billion||4%|
While the numbers were good, the opportunities ahead for Visa may be even better. In the company's conference call, transcribed by S&P Global Market Intelligence, Visa management revealed several near- and long-term catalysts that should keep driving growth for years to come. Let's take a closer look at what tax reform, Visa's ongoing integration in Europe, and continued opportunity might mean for the company in the quarters and years ahead.
Tax savings are on the way
As discussed early last year, Visa may be one of the biggest beneficiaries of a reduced tax rate. CFO Vasant Prabhu estimated that the tax legislation translates to about an additional $1 billion on an annual basis for Visa to reinvest as it sees fit. In the conference call's opening remarks, CEO Al Kelly said:
The recent tax reform will create benefits and opportunities for our business. We're exploring a range of options, and we're prioritizing long-term sustainable investments versus onetime actions. One of the areas we're most focused on is our employees and talent development as this is the foundation of our business ... Additionally, we're exploring other global benefits and investments for our business around the world. Throughout the year, we'll continue to make strategic investments in our people and in the areas of digital products, technology operations and merchant solutions as we position the company for long-term sustainable growth.
The employee benefit Kelly cited was an increase in the company's contributions to its 401(k) program. It also appears shareholders will be getting a fair share of the returns: In the days leading up to the earnings release, Visa's board approved an additional $7.5 billion share repurchase program. Visa now has $9.1 billion approved for buybacks. Visa also raised its dividend by 7% to $0.21 per share. With the last two quarters' raises combined, Visa's quarterly dividend payout is now 27% higher than it was last year.
Visa's European expansion and integration
The best part about the Visa Europe acquisition, according to Kelly, is that it continues "to be accretive at a level above what we thought it would be when we made the acquisition in the first place."
Visa believes it's in prime position to win market share in this all-important market, not just from global and local competitors, but also from that omnipresent enemy: cash. Kelly said some European countries, like Germany, remain "an enormously cash-driven society." One of the things Visa believes will begin to change the preference for cash is the introduction of deeper digital capabilities to the continent. In November, the company introduced Visa Direct, which "provides real time push payment solutions for person-to-person, business-to-business and business-to-consumer applications."
VisaNet, the company's electronic payment network, is still being migrated to the continent and integrated with Visa Europe's network. While the migration will continue throughout 2018, when it's completed, Visa will be able to introduce new products and services to the region.
Growth continues in India
Though Visa is now moving past India's demonetization efforts in late 2016, the company still saw a 12% increase in transactions and a 20% increase in payment volume in the country. Visa now has more than 3 million points of acceptance in the country. Despite this strong growth, Kelly said the company was still in the first or second inning regarding India with "a long, long way to go." Visa is still communicating with India's government and is working hard to increase the contactless and QR code acceptance points in the country.
Visa's shares may have traded down with the market in the week it reported earnings, but that drop should also be put in its proper context. Shares are still up 6% year to date and 47% over the past 12 months -- not too shabby. With earnings per share of $3.70 over the trailing 12 months, Visa's stock price still trades at a hefty P/E ratio of 32.7, which is not cheap by any means. Given that remarkable run-up in 2017 and their steep valuation, Visa's shares may have gotten a little ahead of themselves. That being said, there was a lot to like for long-term-minded shareholders in Visa's quarter.