Visa Outshines on Higher Spending - Analyst Blog


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Visa Inc. 's ( V ) fiscal second-quarter 2012 (ended March 31, 2012) operating earnings of $1.60 per Class A common share outpaced the Zacks Consensus Estimate of $1.50. Additionally, the earnings substantially exceeded prior-year quarter's earnings of $1.23 per share, primarily based on lower share count. Consequently, operating net income soared 23.0% year over year to $1.08 billion.

Visa's GAAP net income for the quarter stood at $1.29 billion, surging 46.7% from $881 million in the year-ago quarter. This included a deferred tax adjustment of $208 million or 31 cents per share. Besides, operating income escalated 16.1% year over year to $1.61 billion. Meanwhile, total GAAP operating expenses rose 12.8% year over year to $972 million, whereas the effective tax rate was 32.6% in the reported quarter.

Alongside, total operating revenues for the reported quarter were $2.58 billion, up 14.8% year over year and exceeded the Zacks Consensus Estimate of $2.48 billion. Growth was driven by strong performance across all segments.

Service revenues increased 13.5% year over year to $1.24 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues improved 12.0% over the prior-year period to $922 million.

Besides, International transaction revenues, which are driven by cross-border payments volume, spiked 17.5% over the prior-year quarter to $733 million. Other revenues, earned through Visa Europe's licensing fee, were $179 million, climbing 14.8% over the year-ago quarter. Client incentives, which are a contra-revenue item, were $497 million, representing 16.2% of gross revenues.

On a constant dollar basis, payments volume increased 11% year over year to $956 billion. Total processed transactions carrying the Visa brand increased 8% year over year to 13.0 billion. Cross border volume, on a constant dollar basis, grew 16% year over year.

Financial Update

As of March 31, 2012, cash and cash equivalents, restricted cash and available-for-sale investment securities totaled $8.9 billion, up from $6.9 billion as of September 30, 2011, including $4.3 billion of restricted cash for litigation escrow. Nevertheless, long-term debt remained nil.

Total shareholders' equity was recorded at $28.5 billion, up from $26.4 billion as of September 30, 2011. Besides, Visa's operating cash flow surged to $2.38 billion in the reported quarter from $1.61 billion as of March 31, 2011. No shares were repurchased during the reported quarter.


Visa also revised its financial outlook for fiscal 2012, and now is anticipating annual earnings per share to grow in the high teens-to-low twenties from the prior high teens band.

However, Visa reiterated other financial projections for 2012. Annual net revenue growth is expected to be in the low double-digits range. The company also continues to estimate annual operating margin of about 60%, capital expenditure within $350-400 million and annual free cash flow of over $4 billion.

Further, the company expects client incentives within the range of 17-18% of gross revenues and marketing expenses to be less than $1.0 billion. While GAAP tax rate is expected within 29-30%, adjusted tax rate is projected within 33-34%.

Dividend Update

On April 26, 2012, the board of Visa declared a quarterly dividend of 22 cents per share of class A common stock payable on June 5, 2012, to the company's Class A, Class B and Class C common shareholders of record as on May 18, 2012.

On March 6, 2012, Visa paid a quarterly dividend of 22 cents per share to the shareholders of record as on February 17, 2012.

Besides, on December 6, 2011, Visa hiked its regular dividend by 47% to 22 cents per share from the prior dividend payout of 15 cents.

Our Take

Visa continues to drive growth through increased payment volumes along with consistent growth in processed transactions. The company benefits from strong secular demand growth, meaningful international exposure, high barriers to entry, excellent pricing power and impressive operating leverage.

Although regulatory compliances as a result of the ongoing financial overhaul in the U.S. and litigation are expected to weigh on the financials of the company in fiscal 2012, Visa aims to retain its strength by exploring newer growth avenues that include mobile, eCommerce and money transfer services. Besides, expansion into emerging international markets also supports growth. The company is also generating strong cash flow and maintains a healthy capital position. Visa carries a Zacks Rank #3, implying a short-term Hold recommendation and long-term Neutral rating.

Yesterday, Visa's prime peer, MasterCard Inc. ( MA ), reported first-quarter 2012 operating earnings per share of $5.36 modestly beating the Zacks Consensus Estimate of $5.30 and outpaced the year-ago quarter's earnings of $4.29 per share. Net income for the reported quarter stood at $682 million, spiking 21.4% from $562 million in the prior-year quarter.

The year-over-year upbeat results were primarily due to better pricing, an increased number of processed transactions, strong gross dollar value (GDV) growth and lower tax rate. However, higher-than-expected acquisition and operating expenses partially limited the margins' upside.

MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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