EUR 850.00 For Business Accounts Only

Morningstar | Visa Growth Accelerates a Bit in Fiscal 3Q

As expected, Visa’s top-line growth improved in its fiscal third quarter. The secular tailwind that the company enjoys was more prominent, but nothing in the quarter materially alters our long-term view, and we will maintain our $148 fair value estimate and wide moat rating.

Net revenue grew 13% year over year on a constant-currency basis, with an accounting change boosting growth by 150 basis points. Excluding the accounting change, growth was roughly in line with our longer-term expectations. Payment volumes on a constant-currency basis were up 9% year over year for the three months ended June 30, a slight acceleration from the previous quarter, and suggests the company is moving past the modest macro headwinds it’s faced.

Cross-border volume also picked up, growing 9% year over year on a constant-currency basis, if intra-Europe transactions, which are priced more in line with domestic payments, are excluded. We are encouraged by the better results in this area, as cross-border payments are particularly lucrative. We think this area deserves scrutiny, as we believe regional networks are building out their cross-border capabilities, which could eat into growth longer term. But this quarter supports our view that Visa will hold its own and that the recent interruption in growth was macro-driven.

Client incentives remain contained, coming in at 20.9% of total revenue for the period. While management expects that level to rise through the year, it lowered its full-year expectation down to 21.5%-22%, which is in line with our forecast.

Operating margins, based on net revenue and excluded litigation costs, came in at 66.9% compared with 66.5% last year. We think the scalability of Visa’s model will allow for meaningful margin expansion over time. The quarter’s rate of improvement was a bit below our long-term expectations, but this was driven in part by the accounting change.