Visa Inc. V reported fiscal third-quarter 2023 earnings of $2.16 per share, which beat the Zacks Consensus Estimate of $2.11 by 2.4%. The bottom line improved 9% year over year.
Net revenues amounted to $8,123 million, which advanced 12% year over year in the quarter under review. The top line outpaced the consensus mark by 0.7%.
The solid quarterly results benefited on the back of higher payments, and cross-border volumes and processed transactions. Steady cross-border travel growth and higher-than-expected data processing aided the results, partially offset by higher costs.
Visa Inc. Price, Consensus and EPS Surprise
Visa Inc. price-consensus-eps-surprise-chart | Visa Inc. Quote
Q3 Business Drivers
Visa’s payments volume grew 9% year over year on a constant-dollar basis in the fiscal third quarter, backed by strength seen in CEMEA and LAC regions. Processed transactions (implying transactions processed by Visa) totaled 54 billion, which rose 10% year over year and beat our estimate of 51.3 billion.
On a constant-dollar basis, the cross-border volume of Visa climbed 17% year over year in the quarter under review. Excluding transactions within Europe, its cross-border volume (that boosts a company’s international transaction revenues) advanced 22% year over year on a constant-dollar basis.
Q3 Operational Performance
Service revenues improved 15% year over year to $3.7 billion during the June quarter on the back of better payment volumes. The metric was in line with our estimate. V’s data processing revenues of $4.1 billion grew 15% year over year in the quarter under review, beating our estimate of $3.9 billion.
International transaction revenues advanced 14% year over year to $2.9 billion, which met our estimate on higher cross-border volume. Other revenues of $597 million climbed 15% year over year but came lower than our estimate of $613.4 million.
Client incentives (a contra-revenue item) of Visa escalated 23% year over year to $3.2 billion in the quarter under review and met our estimate. The metric amounted to 28.1% of Visa’s gross revenues of $11.3 billion.
Total adjusted operating expenses of $2.6 billion increased 10% year over year and met our estimate. The increase was due to elevated personnel costs and professional fees. Interest expense came in at $182 million, up 64% year over year.
Balance Sheet (as of Jun 30, 2023)
Visa exited the June quarter with cash and cash equivalents of $15.6 billion, which marginally dropped from the 2022 fiscal year-end level of $15.7 billion.
Total assets of $89.2 billion increased from the 2022 fiscal year-end level of $85.5 billion.
V’s long-term debt amounted to $20.6 billion, which inched up from the fiscal year-end level of $20.2 billion.
Total equity grew from the 2022 fiscal year-end level of $35.6 billion to $39 billion.
Cash Flows
Visa generated net cash from operations of $13.8 billion in the nine months ended Jun 30, 2023, which increased from $13 billion a year ago. Fiscal third-quarter free cash flows of $5,502 million rose from $5,017 million a year ago.
Capital Deployment Update
Visa rewarded $3.9 billion to shareholders via share buybacks of almost $3 billion and dividends of $937 million in the June quarter. V had authorized funds of $8.8 billion remaining under its share buyback program as of Jun 30, 2023.
On Jul 25, 2023, management sanctioned a quarterly cash dividend of 45 cents per share, which will be paid out on Sep 1, 2023, to shareholders of record as of Aug 11, 2023.
Outlook
For the fiscal fourth quarter, it expects net revenue growth of around 10%. Client incentives for the full year are expected to remain at the upper side of 26.5-27.5% of gross revenues. Client incentives for the fiscal fourth quarter are expected to remain between 27.5% and 28.5%.
The fiscal fourth quarter tax rate is expected within 19-19.5%. Non-GAAP operating expense growth is likely to witness a moderation throughout fiscal 2023. Its growth rate in the fiscal fourth quarter is likely to face a reduction of two to three points from the fiscal third quarter.
It expects interest income from cash to be $30 million higher than interest expense from debt in the fiscal fourth quarter. The company expects EPS growth in fiscal 2023 in the mid-teens.
Zacks Rank & Key Picks
Visa currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Business Services space are S&P Global Inc. SPGI, Paychex, Inc. PAYX and Marqeta, Inc. MQ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for S&P Global’s current year earnings indicates a 12.3% year-over-year increase. New York-based SPGI beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 3.1%.
The Zacks Consensus Estimate for Paychex’s current year bottom line predicts a 9.6% year-over-year growth. Headquartered in Rochester, NY, PAYX beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 3.4%.
The Zacks Consensus Estimate for Marqeta’s current year top line suggests 21.8% year-over-year growth. Based in Oakland, MQ beat earnings estimates in two of the past four quarters, met once and missed on another occasion, with an average surprise of 11.8%.
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