Morningstar | Visa Maintains its Growth in Fiscal 1Q
While the company faced some modest headwinds, we think Visa’s fiscal first-quarter results are further confirmation of the company’s ample and sustainable growth runway. The company’s solid growth and impressive margins support our wide moat rating, and we will maintain our $129 fair value estimate.Fiscal first-quarter net revenue was up 13% year over year, with payments volume up 11% on a constant currency basis. The one weak note was 7% growth in cross-border transactions on a constant currency basis. While there were some one-time items that impacted this number, management pointed to Europe as the weak spot, and noted that the softness has continued into the current quarter. With political events such as Brexit on the horizon, this could become a modest headwind for Visa in the coming year, but the issue doesn’t impact our long-term view of the firm.
Operating margins (using net revenue) came in at 67.5% during the first quarter, down a bit from 68.4% last year, due to an uptick in personnel and marketing costs. While client incentives as a percentage of gross revenue held steady at 21%, management attributed this to delays in new deals, and continues to expect the full-year figure to be between 22% and 23%. Despite appearing to be in a bit of an investment period right now, we think solid growth and the scalability of the company's business model will allow for margin improvement over time.
During the first quarter, Visa also bought back $2.3 billion in stock and just announced a new $8.5 billion repurchase authorization. While we don’t view stock repurchases as value-creative at recent market prices, we do think these figures highlight the financial flexibility Visa enjoys.
Visa is engaged in digital payments. The company facilitates payments between consumers and businesses. The company is focused on its proprietary network, VisaNet, to provide products and services. The company provides a portfolio of business payment solutions, including small business, corporate (travel) cards, purchasing cards, virtual cards/digital credentials, non-card cross-border business-to-business payment options and disbursement accounts, covering various main industry segments around the world. The company also provides several capabilities and services, including fraud prevention and security, processing, loyalty, merchant and digital solutions, consulting and data solutions.
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