Visa Earnings: A Strong Quarter, but There Could Be Slower Times Ahead

Despite a solid earnings beat and strong all-around results, Visa’s stock dropped after earnings. Why?

Matthew Frankel, CFP
Matthew Frankel, CFP
Jan 31, 2019 at 11:01AM
Financials

Check out the latest Visa earnings call transcript.

Now that we're well into earnings season, the major fintech companies have started to report their latest results. Visa (NYSE:V) just announced its performance from its most recent quarter, and the company gave investors lots to smile about.

Despite strong results, Visa's stock dropped after the earnings release, but not because of the quarter's performance. Here's a rundown of Visa's fiscal first quarter and why the market is reacting negatively.

Person holding a credit card in one hand while using a laptop.

Image source: Getty Images.

The headline numbers

Visa's revenue for its fiscal first quarter (the fourth calendar quarter) came in at $5.51 billion, which was $100 million more than analysts had been expecting and 13% more than the same quarter last year. On the bottom line, earnings of $1.30 per share handily surpassed the $1.25 that was predicted and represented 21% year-over-year growth.

While this is clearly good news, the top and bottom lines never tell the whole story, so let's dive a little deeper into Visa's quarter to see how the business is performing.

Beyond the headlines: All-around strong results

Here's a rundown of some of the most important facts and figures from Visa's first-quarter earnings that investors should be paying attention to:

  • On a constant-currency basis, Visa's payments volume increased 11% year-over-year to $2.2 trillion for the quarter. About 45% of this amount came from within the U.S., with the rest from international markets.
  • The number of transactions on Visa's network also rose by 11% to nearly 50 billion. About one-third of transactions were from credit cards and two-thirds were from debit cards.
  • Visa also announced a new $8.5 billion share buyback authorization, which translates to about 3.5% of the company's outstanding stock based on the current price.
  • The number of Visa-network payment cards in existence grew by 4% last year to 3.35 billion. There are now 1.11 billion Visa credit cards and 2.24 billion Visa debit cards.
  • Data-processing revenue was a particularly strong area of growth, up 15% year over year. International transaction revenue, another key growth area for Visa, grew at an 11% rate.
  • One potentially negative aspect is that Visa's operating margin contracted by 0.9 percentage points. Although revenue grew by 13% as mentioned, operating expenses increased by 17%. The biggest increase was a 24% rise in marketing costs, although personnel expenses (the company's largest category) increased by 19%.

Furthermore, Visa expects similarly strong performance in 2019. The company's outlook calls for "low double-digit" revenue growth and EPS growth in the "high teens," as well as a single-digit increase in adjusted operating expenses.

To sum it up, Visa's results look rather strong, and the most negative aspect (expense growth) appears to be temporary.

What killed the post-earnings rally?

At this point, you might be wondering why Visa stock dropped after earnings. After all, an earnings beat on both the top and bottom lines as well as all-around strong results are generally positive catalysts.

Well, it's not a totally accurate statement to say that Visa dropped after earnings. Visa initially surged after its earnings report was released, as you might expect given the numbers. However, the stock promptly reversed course during the company's earnings conference call when CFO Vasant Prabhu spoke about slowing growth in the U.S., U.K., and Brazil, as well as uncertainty surrounding several ongoing political issues, such as Brexit and the U.S.-China trade war.

In short, the most recent quarter was a good one for Visa. However, investors are clearly interpreting Prabhu's remarks as a sign that things could slow down considerably in 2019 for the payment-processing giant.