Visa Q4 Earnings

 

Key takeaways:

• Cross border recovery may take a while. Visa beat estimates but the stock is down on FY22 guidance and cautious commentary on the call related to the outlook for recovery in cross-border volumes given continued Covid related headwinds to travel
• Weak guidance: Q1 revs expected to be up high-teens (expectations were +22%) and for FY22 revenues expected to be up at the “high end of the mid-teens” while expectations were for +20%.
• Authorized a 17% increase in the quarterly dividend
• Quote from the call, “Cross-border travel is recovering well, but still well below pre-COVID levels with the pace of recovery depends on border openings. Asia has not reopened to the degree the rest of the world has. The timing of reopening in key countries across Asia both domestically and for cross-border travel is the key variable. Most importantly, COVID variants are still with us and vaccination rates remain low in large parts of the globe. With these factors as the backdrop, forecasting the trajectory of the return to normalcy remains difficult.”

 

 

Additional Highlights:

• Q4 trends…

• Net revenues grew 29% YoY. Overall payments volume was a 121% of 2019. Across regions payment volumes are tracking well ahead of 2019, except in Asia which is their weakest region…up only 5% from 2019. Many countries instituted restrictions in the quarter including Australia, New Zealand, Japan and Singapore, but all have started to recover in the past few weeks.

• Cross-border travel recovery continues to lag – Overall cross-border volume excluding intra-Europe was 86% of 2019….looking just at cross-border travel it went from 40% of 2019 in April to 50% in June to 61% in September. This is a key area for them as cross-border is highly profitable. The vast majority of the travel Visa captures on their credentials is consumer, and they are the global leader in travel co-branded cards.
• “As we’ve seen consistently during the pandemic, there is pent-up demand for travel as bookings accelerate, when a border is opened. Latin America remains by far the strongest destination, well over 2019 levels. U.S. to Mexico travel remained robust, with spend more than 60% above 2019 levels in Q4. The Asia-Pacific remains mostly closed and did not meaningfully improve in the fourth quarter, remaining below 30% of 2019 both inbound and outbound.”

• Improving QTD trends – QTD trends showed slight improvement vs Q4. In the US payments were +32% vs October 2019 w/ debit +44% and credit +22%. For cross border excluding intra-Europe, volumes are still lagging…at 94% of October 2019 levels. Travel-related spending versus 2019 improved four points compared to September to 65% of 2019.
• A lot of focus on the call was related to their key growth areas…

• Consumer payments – the pandemic has helped accelerate digitizing the $18 trillion spent in cash and check globally. This is driven by evolving modes of acceptance (tap-to-pay, online), continuing to grow merchants (grew acceptance 14%) and grow cardholders (grew credentials 7%) with traditional issuers, FinTech’s and wallets. Notably, “merchant locations” only count partners like PayPal and Square each as one. LT opportunity to grow the pie for digital payments w/ the 1.7 billion unbanked.
• New Flows – $185 trillion in B2B, P2P, B2C and G2C. P2P, which represents $20 trillion of the opp., was Visa Direct’s first use case and continues to grow substantially. A key area of future growth is cross-border P2P, or remittance.
• Value-added services – includes consulting, technology platforms (e.g. Cybersource, issuer processing, and risk identity and authentication), data and insights, and card benefits, all which will improve with the recovery. Opportunity to increase penetration w/ existing clients. In 2021, 40% of their clients used five or more value-added services and nearly 30% use 10 or more.
• “We enable the disruptors” which helps to accelerate Visa’s growth

• Visa helps the disruptors scale without picking winners and losers
• Digital Wallets: increasingly embed Visa credentials in their wallets to aid their own growth, so the consumer can use it anywhere Visa is accepted as well as receive and send cross-border P2P payments
• Crypto opportunity:

• “leaning into in a very, very big way, and I think we are extremely well positioned”
• Enabling purchases, enabling conversion of a digital currency to a fiat on a Visa credential, helping financial institutions and FinTech’s have a crypto option for their customers and upgraded their infrastructure to support digital currency settlement
• They have nearly 60 crypto platform partners that are working with them
• Working with Central Banks as digital currency is being explored in many nations

• Growth in “buy now, pay later” (BNPL)

• Nascent but growing
• The majority of the installment payoffs are on cards today
• Visa is working with third party providers as well as offering their own proprietary platform that would allow issuers to offer their own buy now, pay later capability
• “We believe we’re currently experiencing BNPL 1.0. Individual FinTech’s and companies are cutting individual deals merchant by merchant. Eventually, we believe the business model will evolve to BNPL 2.0 where fintech partners issue Visa credentials to leverage our acceptance and platforms to overcome the difficulty of scaling acceptance globally merchant by merchant. We’re already seeing this evolution begin to take shape, just this quarter I signed a global brand deal to accelerate expansion and scale into several markets.”