Credit card issuer Visa (V) will report third quarter fiscal 2020 earnings results after the closing bell Tuesday. Up 4% year to date, Visa stock has recovered impressively since the March lows, including gains of 17% in the past three months.
But given the stalling of the global economy due to COVID-19 shutdowns and the volume declines Visa has suffered, it’s reasonable to ask how much more upside Visa stock can reasonably provide from here. There are a 5% year-over-year decline in total U.S. payments volume in May. Of that total, credit payments declined 21% year over year. On the bright side, there is evidence that debit card usage has remained steady, with May debit payments rising 12%.
The consumer is under pressure due to the recession which is clearly reflected in Visa’s metrics. With shelter-in-place restrictions being lifted in late May and early June, Visa management noted of improved business activity, driven by a rise in spending. The question remains, however, is how long will the combination of higher savings rates and declining credit card usage apply downward pressure on Visa’s revenue? And while the rebound in business is encouraging and could reflect positively the quarterly results, is that assumption already priced into the stock?
For the quarter that ended June, the San Francisco-based company is expected to report $1.03 in earnings per share on revenue of $4.83 billion. This compares to the year-ago quarter when the payments technology company earned $1.37 per share on revenue of $5.84 billion. For the full year, ending in October, earnings are projected to decline 7.5% year over year to $5.03 per share, while revenue of $21.96 billion would rise decline 4.4% year over year.
Aside from the expected 25% decline in quarter revenue, Wall Street will likely focus on the company’s segment performances, namely Visa’s cross-border volumes transactions which plunged 45% in May, while Travel-related cross-border volumes slumped 78%. Consumers understandably spent a lot less in the last two months. These declines were partially offset by an 18% rise in cross-border e-commerce volumes, which was understandable, given the global lockdown and the subsequent rise in e-commerce.
Depending on the region, there are phased re-openings taking place in various international markets, which bodes well for what Visa is likely to report on Tuesday. But overall, given that COVID cases are still rising in parts of the world, it’s hard to imagine Visa’s Q3 cross border transaction volumes being anywhere close to what they were at the start of the year.
The next issue of concern from investors will be the growing competition Visa, as well as rival MasterCard (M), faces from Fintech (financial technology) players such as Square (SQ) and PayPal (PYPL). For the most part, Visa has shown no ill-effects from competitors, but at some point, the market — which so far has excused 2020 performances — will begin to price in subdued growth rates for 2021 and beyond. In that vein, Visa’s guidance for Q4 and early 2021 will key in how the stock reacts.
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