Shares of Visa (V) were surging higher after reporting fiscal second quarter 2017 results. The company reported net operating revenue of $4.477 billion, up from $3.626 billion from the same period a year ago, a gain of 23.5 percent. The company reported income before tax of $2.702 billion, up from $2.441 billion a year ago. Net income fell to $430 million down from $1.707 billion in 2016. Net income was negatively impacted by an increase in income tax provisions, which rose to $2.272 billion, from $734 million y/y. The company reported adjusted diluted EPS $0.86. Analysts had been looking for EPS of $0.79 and revenue of $4.291 billion. The company also announced a new $5.0 billion share repurchase program.
The company also updated its financial outlook for 2017, raising its forecast for annual net revenue growth to the high end of 16 percent to 18 percent range. The company also see adjusted EPS on the high end of the mid-teens. Analyst had been looking for fiscal full-year 2017 revenue of $17.74 billion and adjusted EPS of $3.32.
Payment volumes increased to $1.730 trillion, up from $1.252 trillion in 2016. Credit transaction surged to $974 billion from $828 billion, and debt transactions jumped to $755 billion from $473 billion. The company also reported a 38 percent increase in total transactions and a 42 percent jump in processed transactions.
One thing to consider in all of these results is the inclusion of VISA Europe in the results. After adjusting for VISA Europe, in 2016 the company had total volumes of $1.793 trillion, which did not include Europe. In 2017 the company reported total volumes of $2.421 trillion, with Europe, which accounted for $458 billion of the total. If you strip Europe out it would bring the total volume down to $1.963 trillion and the growth rate down to 9.5 percent. Processed volumes, when adjusted for Visa Europe, had normalized growth of 12 percent. These are still huge growth numbers, but it is important to realize that the comp is not apples to apples.
The quarterly results seem strong, with results that easily beat analyst estimates and guidance that is at the higher end of the range.
Revenue growth appears to be accelerating again after a slowdown over the past couple of quarters. Additionally, the payment volume jump was an incredibly strong number off an incredibly broad base. The large payment volume increase could be viewed as a positive read through for MasterCard (MA), which is expected to report numbers on May 2nd. Analysts are looking for MA to report EPS of $0.95 and revenue of $2.651 billion. Visa's stock price and Visa's revenue numbers are highly correlated to MA and its stock price. We compare MA's revenue numbers in the chart below.
Michael Kramer and the clients of Mott Capital Management, LLC own shares of V and MA. Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.