Visa Earnings: What Happened

Payments volume is back to year-over-year growth

Key Takeaways

  • Adjusted EPS was $1.12 vs the $1.09 analysts expected.
  • Growth in payments volume was higher than expected.
  • Revenue declined, but by less than expected.

What Happened

Visa reported higher-than-expected revenue and adjusted earnings for the final quarter of its 2020 fiscal year. Even though both numbers were down substantially from last year, they fell by less than expected. Visa's payments volume rose by more than expected, but also significantly less than in previous years. However, this is a substantial improvement over last quarter, when Visa's payments volume actually declined year over year.

(Below is Investopedia's original earnings preview, published Oct. 26, 2020)

What to Look For

Visa Inc. (V) suffered major year-over-year (YOY) declines in quarterly revenue and adjusted EPS in the latest quarter, ending several years of quarterly gains. That reversal in fortunes for the financial payments giant stemmed from a decline in global payments volume caused as consumers worldwide limited spending amid the pandemic.

Investors will look at whether Visa has turned its earnings around when it reports results on October 28 for Q4 FY 2020. The company's fiscal year ends in September. For Q4, analysts expect Visa to report its second straight quarter of year-over-year declines in revenue and adjusted EPS.

A key related metric that investors will watch is Visa's global payments volume in constant currency. Measuring Visa's growth in constant currencies smooths out exchange rate fluctuations and gives investors a clearer picture of this metric. Analysts predict that Visa's global payments volume will rebound in Q4 from a decline in Q3 FY 2020. Still, that growth will be significantly slower than a year earlier.

The uncertainty around Visa's performance during the global economic slowdown caused by COVID-19 may explain why the company's stock has barely outperformed the broader market. In the past 12 months, Visa has provided a total return of 16.3% as compared with 15.3% for the S&P 500.

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

Visa's stock plunged sharply as the broader market crashed in mid-March, then staged a strong rebound and traded sideways for several months until late July. The stock declined after the company reported on July 28 that adjusted EPS plunged 22.6% in Q3 FY 2020. But the number beat analysts' estimates and the stock rebounded in August, advancing through early September. Since then, the shares have drifted downward.

For the 14 quarters leading up to Q3 FY 2020, Visa posted consecutive YOY gains in adjusted EPS, including 9 quarters with YOY gains of more than 20%. For Q4 FY 2020, estimates predict a 25.9% plunge YOY in adjusted EPS.

Visa's revenue growth has shown a similar pattern. Prior to Q3 FY 2020, Visa's revenue had grown in each of the previous 14 quarters, although the pace of growth slowed in the first half of FY 2020. Q2 FY 2020, for example, saw YOY growth of 6.6%. Q3 FY 2020, however, marked a dramatic shift, with a YOY decline in revenue of 17.2%. Now, analysts predict that Q4 FY 2020 will see an even more dramatic revenue decline of 18.6%, compared to a gain of 12.9% one year prior in Q4 FY 2019.

V Key Metrics
  Estimate for Q4 FY 2020 Actual for Q4 FY 2019 Actual for Q4 FY 2018
Adjusted Earnings Per Share ($) 1.09 1.47 1.21
Revenue ($B) 5.0 6.1 5.4
Payments Volume Growth (Constant Currency) (%) 2.1 9.1 11.7

As COVID-19 continues to disrupt global consumer and business markets, a key metric Visa investors will 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. By measuring payments volume in constant currency, investors can make sure the observed growth or decline in payments volume is a reflection of the amount of business Visa is doing rather than exchange rate fluctuations.

Like revenue and adjusted EPS, Visa's quarterly payments volume had increased YOY for at least each of the 14 quarters prior to Q3 FY 2020. Over that period, quarterly YOY increases gradually slowed from Q4 FY 2016 through Q2 FY 2020, when volume rose 4.1%. Q3 FY 2020 the saw a YOY decline of 9.9%. Analysts are more optimistic about Visa's performance in this key area as opposed to revenue and EPS for Q4 FY 2020, as consensus estimates predict YOY gains of 2.1%. While this would be an improvement, it nonetheless would be the second-worst performance in at least four years.

Article Sources
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  1. Wall Street Journal. "Visa Profit Falls on Lower Payments Volume."

  2. Visa Inc. "Q4 and Full-Year 2020 Visa Inc Earnings Conference Call."

  3. Visible Alpha. "Visible Alpha."

  4. Yahoo! Finance. "Analysis."

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