When Visa Inc. (V 0.84%) reported its third-quarter earnings late last month, shares dipped on the news even though the company delivered a repeat performance in a long line of strong showings. While shares did trend downward after the quarterly report, the company's stock price is still up more than 21% year to date and more than 40% over the trailing 12 months. Even the company's most spoiled investors should be pleased with returns like that.
In the quarter, net revenue rose to $5.2 billion, a 15% increase year over year, and adjusted earnings per share (EPS) grew to $1.20, a 39% increase year over year. The strong top- and bottom-line growth was powered by strong growth in total payments volume -- the amount of money that travels across Visa's payment network -- to $2.1 trillion, a 13% increase year over year. Also in Q3, processed transactions, the number of times a Visa-branded product was used to facilitate a transaction, rose 12% to 31.7 billion. What stood out was that Visa's international numbers easily outshone its domestic growth, an ongoing trend for the company.
|Visa Metric||Q3 2018||Q3 2017||Year-Over-Year Change|
|Net revenue||$5.24 billion||$4.57 billion||15%|
|Payments volume||$2.10 trillion||$1.87 trillion||13%|
|Processed transactions||31.73 billion||28.45 billion||12%|
Visa's international success
Underlining the strong showing in foreign markets was Visa's 14.5% increase in payment volume in international markets, higher than the company average and significantly higher than its 10% domestic payment volume increase. In Q3, international transaction revenue grew 16% to $1.83 billion. Visa CEO Al Kelly acknowledged the international trends in the third quarter conference call:
[O]ver the next number of years, the bulk of our growth is going to come from overseas. It's something we're putting a lot of time and attention to. I've personally spent a lot of my personal time overseas. So, I think you're going to continue to see us invest in these markets. The cash displacement opportunity is great.
While Visa seems to be growing strong in most of its foreign markets, the biggest opportunities seem to come from Europe and India.
Europe's "substantial runway for growth"
Perhaps the single brightest spot for Visa remains in Europe, where its integration of Visa Europe continues ahead of schedule and is possibly more lucrative than originally thought. In the conference call, CFO Vasant Prabhu said Visa Europe would be accretive at "double-digit levels" this fiscal year, a full two years ahead of schedule. But Prabhu did not think that Europe's increasing contribution to the top and bottom lines was about to end anytime soon. He said: "With the integration phase complete, we're entering the growth phase. We have many attractive opportunities for growth across Europe."
Among these "attractive opportunities for growth" in the continent is the high use of cash in some markets. Kelly pointed out that cash is still used for about 60% of consumer transactions in Italy, Poland, and Spain. In addition, Visa Europe's legacy business was heavily concentrated in a few European markets, leaving others underpenetrated. Visa believes it can make strong headway in these markets, where localized solutions exist due to its "competitive advantages" from its "innovative investments and digital capabilities."
Finally, Visa believes it will have more pricing power when the technical migration is completed this calendar year. The migration will mean Visa will be able to offer a better payment network, as well as additional security and analytical features. The reliability issue was highlighted further when Kelly had to address an issue concerning a partial disruption experienced on Visa Europe's legacy network in early June. VisaNet, Visa's global network, is more reliable with greater redundancy built in the network.
Strong growth continues in India
In Q3, Visa saw payment volume increase "well over" 20% in India, which comes while lapping even higher growth rates in 2017. Kelly said the company remained engaged in "productive dialogue" with India's regulators on issues such as debit pricing and data concerns. For now, Prabhu reminded investors, Visa controls more than 50% of the market share in India and that the company was "well-positioned" to continue that growth. When talking specifically about some of the levers Visa might pull in the region, he said:
We're scaling QR code acceptance. We're partnering with issuers on driving awareness and usage. We're working with issuers on things like tokenization, contactless, and scan and pay.
Visa goes global
Visa has now been a public company for over 10 years. In that time, its shares have returned over an astounding 800%, almost six times what the S&P 500 index has returned in the same period. Yet with the company growing in markets around the world, it's hard to imagine the company's market-beating returns coming to an end any time soon. Indeed, I believe management has shown a clear path of growth ahead in some of the world's largest markets -- markets where cash still plays outsized roles in the local economy. Visa remains one of the most obvious players to benefit from the world's shift to digital and electronic payments, and judging by Visa's third-quarter results, that trend seems to have a long runway of growth ahead still.