Visa (NYSE:V) got 2020 started right. During the first three months of the year (the company's fiscal 2020 second quarter), revenue increased 7% year over year to $5.85 billion, and adjusted earnings per share grew 9% to $1.39. Both figures were slightly better than a mid-April update had let on, and thanks to the digital payment processing leader's higher share of the U.S. industry, growth outpaced what was posted by rival MasterCard.
However, as the coronavirus-induced economic lockdown spread to the United States and other developed markets late in the period, Visa said its transaction activity dropped dramatically. Investors, brace for a far uglier report for the fiscal third quarter.
A good year gone bad
By the end of Feb. 2020 and into early March, Visa reported that its total transactions processed were growing by mid-teens percentage rates compared with the year prior. U.S. payments volume was notching a similar rate, and cross-border transactions (which are heavily dominated by international travel spending) were growing about 10%.
That changed quickly, though. By the end of March, total transaction volume was down nearly 30%, as was U.S. payment volume, and cross-border transactions were down over 40%. For the week ended April 28 (April is the first month in Visa's fiscal third quarter), some of those negative trends had eased. Total transactions processed were down about 20%, and U.S. payment volume was down just over 10%. Due to ongoing travel restrictions, cross-border transaction volume remained down some 40% from a year ago.
Visa didn't provide much in the way of financial guidance, given the fast-changing situation. When excluding acquisitions (think high-growth fintech Plaid), management did say it's planning for low single-digit percentage expense declines to help offset revenue losses (all the while staying committed to no employee layoffs). But suffice it to say that the current quarter's headline numbers aren't going to look good.
There was some positive news, though. Visa ended the fiscal second quarter with $12.2 billion in unrestricted cash, equivalents, and short-term investments (plus another $1.1 billion in long-term investment securities) and $13.9 billion in long-term debt. Net income profit margin was also at 52.7%. Thanks to its enviable positioning, Visa will be able to keep the cash returns to shareholders flowing at the most opportunistic of times. Fiscal 2020 to-date, $5.6 billion worth of stock has been purchased, and management said it remains on track to buy $9 billion by year-end. Now that's how you execute a share buyback program.
Data security, touchless payments, and e-commerce
While the outlook is uncertain at best in the short term, the reasons for keeping Visa stock as a core portfolio holding are stronger than ever before. In a post-COVID-19 world, e-commerce and tap-to-pay options should see a permanent uptick in usage. In fact, Visa said tap-to-pay transactions using its touchless technology increased 40% during the quarter, and card-not-present transaction volume (which includes e-commerce) minus the travel category was growing at a near 30% rate in the U.S. and cross-border at the end of April.
That all feeds into Visa's data security business. The Visa Analytics platform delivered 33% more reports to clients, and consulting projects were up 50%. With new technology and internet-based spending on the rise, these will continue to be powerful growth drivers for Visa in the decade ahead.
Of course, business and consumer spending is going to take time to recover, and the fiscal third quarter is shaping up to be a rough stretch if April's results can be extrapolated into May and June. Stay tuned for updates. Nevertheless, Visa is in great shape to weather the storm, and the long-term tailwinds favoring the digital payment leader are blowing stronger than ever before.