Visa (V 0.65%) and its digital payment network peers like Mastercard have had to overcome all kinds of issues the last couple of years, such as the pandemic and a sharp drop in traditional consumer spending that went along with it, war in Europe, and fast-rising interest rates in the U.S. that are causing currency exchange rates to go haywire. In spite of it all, though, Visa is back with a vengeance and growing its revenue fast.
To be sure, this isn't ever going to be the fastest-growing financial technology company out there. If all-out growth is what you're after, look elsewhere. But if steady growth and a high rate of profitability is what you want to build a portfolio around, you're come to the right place.
Visa did a bang-up job in spring 2022
After a significant dip in revenue in 2020, Visa's revenue is back on the rise in grand fashion. But 2022 has arrived with a bevy of new challenges: The company closed its operations in Russia in response to the country's war on Ukraine, ongoing COVID-19 variant infections have kept international travel at bay, and the U.S. Federal Reserve's aggressive interest rate hikes to try and tame inflation have had a big side effect on foreign currency exchange rates.
On this last point, the dollar has been on a historic run against most other foreign currencies. When a company like Visa brings revenue back to the U.S., a stronger dollar reduces the value of that international revenue.
In spite of all these issues, Visa's fiscal 2022 third-quarter (the three months ended June 30) earnings were impressive. Revenue rose 19% year over year to $7.3 billion, up 21% when excluding currency exchange effects. When further accounting for the loss of the Russian business, revenue would have grown 26% year over year. Though international travel has a long way to go to recover, the company's cross-border transaction volume is rallying fast and was up 40% year over year last quarter.
And while various economic factors have caused some companies to report lower profitability compared to 2021, not so with Visa. Net income increased 32% year over year to $3.4 billion (a bonkers net profit margin of 46.6%). Earnings per share increased 36% year over year, helped by nearly $9.5 billion worth of share repurchases the company has made so far during its fiscal year 2022.
A buy for stable growth
Visa is a fantastic bet on the world's gradual migration away from paper to digital money, and it also benefits from the gradual rise in prices (or inflation). It's a classic toll booth model, taking a cut of all transactions that utilize its digital money rails.
Of course, there's the whole blockchain and cryptocurrency movement brewing in the background. More than a few of those digital currency projects would love to take a slice of Visa's pie. But such technological coups will take time to play out.
In the meantime, Visa is in (and building on) its sizable lead as facilitator of digital currency movement. A balance sheet with over $14 billion in cash and equivalents and another $5.5 billion in short- and long-term investments (though offset by debt of $20.5 billion) is hard to shake a stick at.
If you want a potentially faster-growing fintech stock, there are other options out there. But after the earnings report, Visa trades for just under 30 times trailing-12-month free cash flow -- near the lower range of its valuation over the last decade.
This is a premium-priced stock for a reason, though. With steady growth in revenue and profitability, Visa could continue to be a market-beating investment over the next decade.
