Key Takeaways

  • Adjusted EPS was $1.06 vs. the $1.02 analysts expected.
  • Revenue was in line with analyst expectations.
  • Payments volume fell, declining roughly in line with analyst expectations.

What Happened

Visa reported its Q3 2020 earnings on July 28, 2020 and delivered a small earnings beat as its earnings fell slightly less than expected. Its sales matched analysts' expectations, as did its decline in payments volume. The huge economic disruption from COVID-19 hurt Visa across the board. Due to the "significant uncertainty in the global economy" caused by the virus, Visa did not issue full-year guidance.

(Below is Investopedia's original earnings preview, published July 21, 2020)

What to Look For

Visa Inc. (V), the financial payments giant, has posted gains in quarterly revenue and adjusted EPS in each quarter for the past three years. That consistent growth is largely due to Visa's gains in quarterly global payments volume, which was $2.4 trillion in the most recent quarter. Now, it's highly uncertain whether Visa can maintain that growth as millions of credit card holders globally stay home and limit spending as a result of the COVID-19 health crisis.

Investors are looking for clear answers to this question when Visa reports earnings after market close on July 28 for Q3 FY 2020. Visa's fiscal year ends in September. For the quarter, analysts estimate Visa will report sizable year-over-year (YOY) declines in revenue, and EPS.

Investors also will look at another key metric to measure how Visa is navigating the coronavirus fallout: growth in global payments volumes in constant currency. Measuring Visa's growth in constant currencies smooths out exchange rate fluctuations and gives investors a clearer picture of this metric. For Q3 FY 2020, analysts estimate payments volume will fall sharply.

These concerns may be why Visa has barely outperformed the broader market in the past 12 months, with a total return of 10.6% compared with 8.9% for the S&P 500.

One Year Total Return for S&P 500 and Visa
Source: TradingView.

Visa's revenue has grown steadily YOY in recent fiscal Q3 periods, from $4.6 billion in Q3 FY 2017 to $5.2 billion in Q3 FY 2018 to $5.8 billion in Q3 FY 2019. Analysts predict the upcoming report will mark a sharp reversal of that trend, as revenue declines by an estimated 17.3% YOY to $4.8 billion in Q3 FY 2020. This would mark the first YOY quarterly revenue decline in more than three years. However, revenue growth already has been slowing in recent quarters, to 10.0% growth YOY in Q1 FY 2020 and to 6.6% in Q2 FY 2020.

Quarterly EPS growth also has been generally strong in recent years, with increases in 13 of the last 14 quarters. Consensus estimates of $1.02 for Q3 FY 2020 would mark a departure from that trend. That would amount to an estimated 25.2% decline YOY, the first such decline since Q2 FY 2017. Unlike revenue, Visa's quarterly EPS growth has been more volatile in recent quarters, ranging from 6.0% YOY in Q2 FY 2020 all the way to 523.7% YOY in Q2 FY 2018.

V Key Metrics
  Estimate for Q3 FY2020 Actual for Q3  FY2019 Actual for Q3  FY2018
Earnings Per Share $1.02 $1.37 $1.00
Revenue (billions) $4.8 $5.8 $5.2
Payments Volume Growth (Constant Currency) -10.6% 8.7% 11.6%

Source: Visible Alpha

As COVID-19 disrupts global consumer and business markets, the key metric Visa investors may focus on is the YOY increase in payments volume in constant currency, which measures the total value of payments taking place across Visa's financial platforms. Investors look to this gauge of Visa's performance because it reflects the total volume of business that the company can monetize either by fees or by interest.

Visa's quarterly payments volume has increased YOY every quarter for the past three years, a sign of stability for investors. Despite that, the quarterly YOY growth rate of payments has slowed in recent quarters. Payments growth has decelerated from 11.6% in Q3 FY 2018 to 8.7% in Q3 FY 2019. In Q2 FY 2020 it was 4.6%, the lowest it has been in two years. Analysts predict that performance will get worse. They estimate Visa will post a YOY decline in payments volume for Q3 FY 2020 of 10.6%, marking a significant shift in this metric. This metric's slowing growth rate is reflected in the company's decelerating profit and revenue growth.