Visa’s fourth-quarter results came in marginally ahead of forecasts. Net revenue grew by 12% to $9.6bn before the impact of currency movements.
That was driven by solid growth in payment volumes and ‘strong momentum’ in both business-to-business payments and value-added services. Net revenue was also flattered by slower expansion in the level of incentives paid back to customers. Incentives increased just 6% compared to growth of 20% at the same point last year. Underlying net income climbed a little faster than revenue, up 13% to $5.4bn.
Over the full year free cash flow fell by $1.0bn $18.7bn, while distributions to shareholders totalled $20.8bn. Net debt inclusive of client incentive liabilities came in at $14.7bn.
For the new financial year Visa expects both net revenue and operating expenses to grow in the high single to low-double digit range.
The shares rose by 2.94% in the trading session which followed the results.
Our view
News that Visa’s growth rate had picked up slightly in the final quarter of its financial year was welcomed by investors. Guidance for the current financial year also looks solid, if not spectacular.
Despite appearances, Visa isn't a 'credit card company'. It doesn't lend consumers money or run accounts. Instead, Visa charges banks for transferring funds so it won’t have the same exposure to defaults during an economic downturn, although performance will still be impacted by lower card usage.
We are monitoring the fact that some 45% of Visa's total volumes are US-based, where growth is proving harder to come by than in other regions. Despite this headwind, growth elsewhere is pulling up results at the group level and guidance for 2025 looks encouraging.
The volume of lucrative cross-border transactions remains in double digit territory, but growth has slowed considerably as tailwinds from the post-covid travel boom have ebbed away.
Net revenue is also receiving a boost from slowing growth in incentives paid out to key counterparties. But we’re concerned that pulling back on incentives now could be a short-term gain that may be at the expense of growth in future periods. With the cash-to-card transition arguably complete in the US, there are relatively few levers Visa can pull to mitigate any slowdown in its largest market. Another risk to be mindful of is tightening regulation, but for now that’s an obstacle the card issuers seem to be taking in their stride.
Visa generated around $19bn of free cash flow last year, and is expected to build on that number this year. This 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%. Remember no shareholder returns are guaranteed.
Competition from start-ups and more established rivals has become a greater risk recently. But it's not one Visa's left unchecked, and the group's been making strategic acquisitions, including a fraud prevention business underpinned by artificial intelligence (AI). We see the huge data sets processed by Visa as a likely beneficiary from recent advances in AI but would like to see more detail on how this can be monetised.
Long-term we see payments in general as an attractive business. Visa's business model means that additional transactions are virtually costless, so extra revenue turns straight into profit. But high exposure to the US is making that extra revenue hard to find. Visa's valuation is close to its long-term average but with profit growth set to slow for a third year in a row, that looks to be a little vulnerable.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Visa’s management of ESG risks is strong.
Visa has a board-level committee that oversees its ESG strategy and related responsibilities and places a noticeable emphasis on ethics training. Visa has been and continues to be subject to anti-competitive related lawsuits; ongoing litigation alleges that Visa has abused its dominant market position to fix fees paid by merchants. It has implemented measures to monitor and mitigate data breaches and cyberattack. The company commits to a diverse and inclusive workplace and has implemented a target across its US workforce to increase historically underrepresented employees by 50% by 2025.
Visa key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. 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.
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