First quarter net revenue rose 12% to $7.9bn, reflecting stable payments volume and growth in processed transactions. This was better than analysts expected and factors in the $2.8bn spent on client incentives.
There was a 31% increase in cross-border volumes, excluding transactions within Europe. These are a key driver behind Visa's international transaction revenues. Growth was driven by a return to more normal travel levels and the reopening of China.
Underling operating expenses rose 15% to $2.4bn, and operating profit was $5.1bn compared to $4.8bn last year.
Visa had net debt of $7.2bn as at the end of 2022.
Visa repurchased 15.6m shares for $3.1bn. The group has $14.0bn of remaining authorised funds for share repurchases. A quarterly dividend of $0.45 per share was announced.
Visa's new CEO, Ryan McInerney will start in the role on 1 February.
The shares rose 1.1% in after-hours trading.
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Our view
Visa has put in a performance that exceeded analyst expectations. Crucially, the results show that consumer spending has been relatively stable despite tough economic conditions. The reason the market had a fairly muted reaction to this is because while better than planned, trends are still decelerating as recession threats grow.
A sharp downturn could see credit defaults start to swell, but Visa's benefiting from higher credit spend without that risk looming. Despite appearances, Visa isn't a 'credit card company'. It doesn't lend consumers money or run accounts, so it's not on the hook for the money if a customer defaults. Instead, Visa charges banks for transferring funds.
Service revenues are charged to card issuers and are calculated based on the value of the transactions. Data processing revenues depend on the number of transactions that take place and are charged to the bank of both the customer and the receiving business. Cross-border transactions come with additional fees and currency conversion revenues. And this area of the business is enjoying a rebound as travel resumes and China reopens.
We're supportive of Visa's attractive business model. Additional transactions are virtually costless, so extra revenue turns straight into profit. Capital expenditure is limited, meaning profits convert well into cash. Of course, the reverse is also true - so short-term revenue falls have a direct effect on profit.
Net debt's easily covered by free cash flow meaning there's plenty of spare cash to go around. Surplus cash is being returned to shareholders through a combination of dividends and share buybacks. The emphasis is on the latter, meaning the prospective yield is a modest 0.8%.
Competition from start-ups and more established rivals has become a greater risk recently. But it's not one Visa's left unchecked.
The group's been making strategic acquisitions, with the latest additions to the fold including Tink and Currencycloud. These are more digital-focused financial tools, and we're supportive of Visa's efforts to broaden its revenue streams in this way.
Long-term we see payments in general, and Visa in particular, as an attractive business. The valuation's not as demanding as it's been in the past, in part due to inflationary concerns and their impact on future earnings. But we're still mindful that near-term volatility is possible, especially if a global economic downturn starts to impact spending.
Visa key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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