Image source: Visa
Let’s cover some ground on Visa’s (V) calendar third-quarter report, its fiscal fourth-quarter release.
What management said:
“We continue to deliver healthy earnings growth in the face of continued, but abating headwinds. We have begun to see the benefits from our acquisition of Visa Europe and strong cost discipline helped our results. At the same time, we are unwavering in our commitment to invest in client partnership opportunities and the further build out of our digital payments capabilities,” said Charlie Scharf, Chief Executive Officer of Visa Inc. “As we enter fiscal 2017, we are positioned well as revenue headwinds will continue to ease, we will continue to see the benefits from Visa Europe in our results, and our strong client franchise continues to grow,” added Scharf.
The scoop:
Visa’s quarterly performance came in better than consensus numbers on both the top- and bottom-lines, and its outlook continues to be solid, from where we stand. The company’s fiscal fourth quarter revealed astounding adjusted net income expansion of 27% on net operating revenue growth of 19%, revealing the operating leverage in a the kind of business model we absolutely love (one that scales very nicely with top-line expansion). Payments volume growth, including and excluding Visa Europe, was impressive in the period, and the company ended the fiscal year with $12.8 billion in cash and just under $16 billion in long-term debt. Visa generated more than $5 billion in free cash flow during fiscal 2016. The company expects net revenue expansion of 16%-18% for fiscal 2017, after deducting for expectations of 1-1.5 percentage points of negative foreign currency impacts, and an annual operating margin in the mid-60s. Visa recently raised its dividend 18%, to $0.165 per quarter.
Insight from the quarterly conference call:
“Just a few comments about (Visa) Europe. The integration itself is going extremely well. We just couldn’t be happier with the interaction between the two companies, and we are well underway to putting all of the functions together and operating seamlessly as one global entity.” – CEO Charlie Scharf
“…just to talk for a couple of minutes about Visa Checkout. We ended fiscal 2016 with over 15 million consumer accounts in 21 countries, and over 1,400 financial institution partners across the globe participating. More than 300,000 merchants, including some of the largest global retailers have signed on to accept Visa Checkout, representing $162 billion in addressable volume.” – CEO Charlie Scharf
“The dollar (UUP, USDU) has stabilized…oil price stability and a nascent recovery in emerging markets has helped outbound commerce across most regions. Only Europe (VGK, IEV) slowed due to general economic weakness as well as the impact of the Brexit (EWU) vote on the euro (FXE) and the pound (FXB).” – CFO Vasant Prabhu
Are we changing our minds with our position?:
Not a chance. The secular trend away from cash is one that will be a theme for some time, particularly in light of the pace of Visa’s organic expansion. The credit card giant continues to benefit from an unbreakable network effect, reinforced by consumers and merchants around the world, and it holds zero credit risk, unlike peers Discover (DFS) and American Express (AXP). Very few entities can say that they have levels of operating profit surpassing 60% of revenue, but Visa is one. We’re monitoring its valuation, but we continue to like shares a lot. The company has been a fantastic performer in the Best Ideas Newsletter portfolio.