Visa (V -0.65%) shares rocketed after earnings. It was a bevy of good news -- cross-border transactions were up, revenue was up, and the company's growth looked better than it has in quite some time.
The good news only continued into the company's fiscal fourth-quarter conference call. Here are the most important details every shareholder should know about (quotes courtesy of S&P Capital IQ).
1. Big customers are renewing
Visa's No. 1 client will likely always be JPMorgan Chase (JPM -0.96%), which also happens to be the No. 1 credit card issuer in the nation. But in truth, all of the big banks make up a substantial share of the company's business. And other big banks may continue to make Visa their primary card brand.
A quote from Visa CEO Charles Scharf really puts this into perspective:
We renewed a multiyear credit and debit agreement with the Bank of America (BAC -1.46%), our second largest client globally.
To put this into perspective, if BofA were a country, it would be one of the largest in the world for Visa. Our agreement provides the opportunity to grow our share from our prior agreement and we're thrilled with the relationship we have with the Bank of America. And remember...when we signed our 10-year agreement with JPMorgan Chase, they agreed to move the majority of their non-Visa volume to Visa.
2. Apple Pay may bring dividends for Visa
Is Apple Pay just another unnecessary "innovation," or a real product people will use? It remains to be seen, but the initial numbers look good for the payment processors, according to Sharf.
Tim Cook announced that over 1 million cards had been loaded to iPhone 6s in the first 72 hours. Visa represented over 600,000 of those requests. Early days but very encouraging.
3. China could be in the cards
China's UnionPay enjoys an effective monopoly on processing and clearing card purchases in China. That could soon come to an end, as the government announced it would open up the possibility for rivals to compete with the company.
Scharf made it clear that it was still in the early innings.
As far as China goes, there's really not a lot more to talk about than what you've read, which for those who haven't read it, there was an announcement today that the Chinese government will open up the market to competition in our business. We don't know anything specific other than that. We obviously welcome it and we look forward to seeing the specific details and working with people within China to figure out what we need to do to participate in that marketplace where we believe we can add a lot of value.
4. Price hikes are on the way
Following in the path of its rival, MasterCard (MA -0.28%), Visa intends to increase certain fees in fiscal 2015, which could lead to revenue growth and margin expansion in the United States.
[W]e will be taking selected pricing actions, commencing in April of 2015 on certain U.S. acquirer fees, which will result in higher revenue growth in the second half of our fiscal year. Given that we have not taken actions in this area in four years, we believe the length of time and the substantial value these cross-border transactions bring to merchants make a modest adjustment appropriate.
5. Incentives should rise in perpetuity
One of the most critical parts of Visa's earnings is how much the company pays out in incentives to draw business. For 2015, the company guided for 17.5%-18.5% of revenue to flow to incentives.
Scharf explained the rationale for seemingly ever-rising client incentive spending:
[T]he typical client contract is five years and that when a client contract comes up for renewal and if they have been successful, as most are, nearly all are in growing their portfolios, then the level of incentive adjust to a higher level recognizing the growth over the previous five years or whatever the term was and that's the way the businesses worked forever.