After Russia invaded Ukraine in late February, many corporations suspended business operations in Russia in protest of the country's unprovoked attack. One of those companies was the largest credit processing company in the world, Visa (V -0.52%).
Effective March 5, all transactions initiated with Visa credit cards issued in Russia no longer work outside the country, and any Visa cards issued outside of Russia no longer work within Russia.
"We are compelled to act following Russia's unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed," Al Kelly, chairman and CEO of Visa, said. "We regret the impact this will have on our valued colleagues, and on the clients, partners, merchants, and cardholders we serve in Russia. This war and the ongoing threat to peace and stability demand we respond in line with our values."
Visa released fiscal 2022 second-quarter (ended March 31) earnings on April 26. How did the change in Russia affect them? Let's take a look.
Image source: Getty Images.
The revenue impact of pulling out was minimal
Overall, Visa's fiscal second quarter was a good one, with revenue up 25% year over year to $7.2 billion and net income up 21% to $3.6 billion. All the major metrics were up year over year, including payments volume (17%), cross-border volume (38%), and transaction volume (19%). The stock price jumped nearly 7% in the days following the release, so the market obviously reacted favorably. Visa's stock price was down about 4% year to date as of May 4.
Revenue from Russia represented about 4% of Visa's total revenue in the first fiscal half of their year, which includes revenues from domestic and cross-border transactions. But as the suspension of operations only occurred for the last few weeks of the quarter, the impact was minimal.
The company also took a $60 million expense hit in the most recent quarter due to charges related to the deconsolidation of its Russian subsidiary and supporting employees in Russia and Ukraine impacted by the suspension of operations.
On the earnings call, Kelly said the biggest impact from its suspension of operations in Russia would be felt with its Visa Direct business, which allows individuals, businesses, and governments to instantly send or receive money directly using the Visa network. Russia is the second-largest market for Visa Direct, behind the U.S., with about 17% of all transactions last year.
But Kelly said the expansion of this program into new markets (like Israel), on new platforms (including Payfare and Booking.com), and on growing cross-border person-to-person transactions will help offset some of the losses. Overall, Visa Direct transactions in the quarter were up 20% year over year. CFO Vasant Prabhu said the company did not see a material impact on cross-border volume in other places due to Russia's invasion of Ukraine.
Looking ahead
In the second half of the year, the company will see more of an impact from the Russian exit. It is expected to cause a 4% drop in revenue, Prabhu said.
But outside of Russia -- despite supply chain disruptions, rising interest rates, inflation, and the invasion of Ukraine -- both domestic and cross-border volumes are expected to be robust as travel spending fully recovers. Visa expects the growth in domestic and cross-border volumes to offset the Russia revenue losses and sees a return to pre-pandemic revenue growth rates -- in the 15% to 20% range. Further, expenses should be slightly lower from the shutdown of Russian operations.
"As we look ahead, our business will have a reset due to Russia, but we still expect accelerated revenue growth versus pre-COVID over the coming years. This is because there's still ample opportunity around the world across our three growth levers of consumer payments, new flows and value-added services, and our strategy is yielding excellent results," Kelly said.
So, ultimately, the impact looks to be minimal on the company's earnings.
