Financial Sector Ideas

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>>> Visa: A Decent Quarter


Feb. 4, 2014


http://seekingalpha.com/article/1990501-visa-a-decent-quarter?source=yahoo


Visa (V) is a global payments technology company that provides secure and reliable electronic payments infrastructure and support services for the delivery of Visa-branded payment products, including credit, debit, and prepaid cards. Recently, the company came out with its quarterly results and its performance beat analysts' expectations.

The following are the results and my analysis of the results. First a look at the results.

Results:

For the quarter, the company's revenues stood at $3.2 billion, as compared to $2.9 billion during the same period last year. The growth in the revenues was powered by Services revenues that grew by 9.2%, Data processing revenues that grew by 13.36%, and International transaction revenues that grew by 10.7%, partly offset by 8.32% growth in client incentives that the company pays on long-term customer contracts.











Q1 - 2014


Q1 - 2013


% change




Operating Revenues










Service revenues


1,419


1,300


9.15%




Data processing revenues


1,264


1,115


13.36%




International transaction revenues


891


805


10.68%




Other revenues


180


179


0.56%




Client incentives


-599


-553


8.32%




Total operating revenues


3,155


2,846


10.86%

•Key business metrics:

The number of transactions processed by the company grew by 13.5% (including billable transactions) to 17.9 billion. Transactions excluding the billable transactions (processed by VisaNet system) grew by 13% to 16 billion. Payment volume (including cash) grew by 8% to touch $1.75 trillion. Excluding cash, payment volume grew by 10% to $1.1 trillion. The growth in the payment volumes and number of transactions reflect the effects of increased worldwide adaptation of electronic payment systems and a slow-moving global economic recovery.

The growth in payment volume was slower than the growth in the number of transactions, which means that the payment volume per transaction is going down. Payment volume is the primary driver for the service revenues, and the number of processed transactions is the primary driver for the data processing revenues. That is why, the data processing revenues showed more growth than the services revenue, and the trend is likely to continue in the future.
•Operating expenses:

The company kept its operating expenses well under control, as the expenses grew by just 3.06%. Marketing costs and professional fees declined by 3.6% and 14.7% respectively. Network and processing, and Depreciation and amortization, expenses increased 20% and 16.3% respectively. Operating income grew by 15.4% due to decent revenue growth and tight control on the operating expenses. However, due to higher tax payout net income grew by just 8.8%.


Operating Expenses


Q1 - 2014


Q1 - 2013


% change




Personnel


470


454


3.52%




Marketing


186


193


-3.63%




Network and processing


132


110


20.00%




Professional fees


75


88


-14.77%




Depreciation and amortization


107


92


16.30%




General and administrative


108


106


1.89%




Litigation provision


-


3






Total operating expenses


1,078


1,046


3.06%




Operating income


2,077


1,800


15.39%




Non-operating income


6


1


500.00%




Income before income taxes


2,083


1,801


15.66%




Income tax provision


676


508


33.07%




Net income


1,407


1,293


8.82%


Guidance:

The company once again stood by its FY 2014 guidance, which means the company expects a low double-digit increase in the revenue. However, during the second and third quarters the company expects higher marketing expenses. As mentioned by the company:

"Winter Olympics rapidly approaching and World Cup soon to follow, we expect a significant uptick in marketing spend in Q2 and Q3 versus our spend in Q1, followed by a downshift in Q4."

Investor return:

The company declared a quarterly dividend of 40 cents per share. During the quarter, the company repurchased 5 million shares using $1.1 billion of cash on hand. As of December 31, 2013, the company's latest repurchase program had remaining authorized funds of $4.2 billion. Going forward the company is expected to continue with its dividend payout, and repurchase program.

Conclusion

The company is the world's largest processor of credit and debit card payments, and possesses an unmatched payment processing infrastructure.

The stock price of the company showed a significant rise during the last one year. This is the type of performance that slightly beats the analysts' expectations, and was necessary to justify such a rise.

The growth showed by the company, in the revenues as well as in the profit, is an excellent achievement. The growth (11%) in the U.S. market was not unexpected as the U.S. retail sales grew 4% (year over year) during the period. The things that I like most about the results are the growth in the international revenues, which grew 12% despite sluggish economic conditions in some major markets, and growth in the operating margins that improved by 259 bps to touch 65.83%. The improvement in the margins clearly reflects that the company is leveraging its existing infrastructure to good effect.

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