Visa Q1 Earnings

Key takeaways:

• Beat estimates – Beat driven by solid top-line results and lower than expected op expenses and client incentives.
• Sequential volume improvement – with very strong debit and e-commerce spending globally, partially offset by weaker credit and in-store spending.
• Cross-border still a headwind but improving – improvement here is key as this is their biggest Covid headwind driven by travel restrictions.
• CFO Vasant Pabhu said, “As we approach the first anniversary of the pandemic, where do we stand across our key business drivers relative to where we might have been had the pandemic never happened? Global payments volume is four points to five points short of where we might have been. Debit has outperformed helped by accelerated cash displacement and credit is still a drag. In the US, we are actually back to our pre-pandemic growth trajectory, with debit significantly ahead offsetting credit underperformance.”

Additional Highlights:

• Revenues were down 6% YoY driven by cross-border headwinds (down 21% YoY or -33% YoY excluding intra-Europe), but partially offset by volume growth. Operating expenses were down 10%, leading to margin improvement (lower advertising, administrative, and personnel costs).
• While cross-border spending did improve for the quarter, it remains depressed, led by travel spending, as the majority of borders remain closed. 
• Cross border spending drives International transaction revenues which are >25% of total net revenues. As such, the steep drop is offsetting growth in service revs and data processing revs. As travel restrictions lift with the vaccine rollout, Visa will see a recovery in this meaningful piece of revenue.
• Within the US, Total volumes are up slightly YoY driven by growth in debit while credit has lagged. Stimulus checks helping with this. Card present transaction are down YoY, while card not present, ex-travel is up as consumers shift spending online w/ lack of travel spending benefiting other categories.
  

While COVID has been a headwind for Visa, particularly in cross border volumes – the long-term thesis is intact. Visa is a high moat, duopoly company with extremely high FCF margins (approaching 50%), strong balance sheet and continued runway for secular growth driven by the shift from cash to card/digital payments. Trading at >3% FCF yield.