Cards, Consumers Help Visa Profit Trump Macro

In a bright spot amid the payments industry’s earnings landscape, Visa put up Q1 numbers on Thursday (Jan. 28) that were better than expected, at least on the bottom line.

The company said it earned $0.69 a share, on an adjusted basis, a penny better than consensus. The EPS managed to come in ahead of estimates even as the company continued to battle headwinds related to both the strong dollar and clouding macroeconomic skies.

The earnings came on top of $3.57 billion in top line for the period, which was just a bit lower than the $3.62 billion projected by analysts.

Looking at the total payments volume, the push ahead was robust year over year, to the tune of 11 percent to $1.3 trillion, as measured on a constant dollar basis – and given the 2 percent pop in Visa’s common shares after the report, it is likely that that move ahead was a welcome one. In fact, some news outlets said that analysts had expected to see payments volume up only a little better than 6 percent

The consumer in the United States proved to be resilient in the period, with payments up about 9.5 percent, and accounting for a bit more than half of the total tally.

However, the aforementioned headwinds managed to crimp growth rates in cross-border transactions, with transactions up 4 percent on a constant currency basis, half the 8 percent increase seen in the comparable year ago quarter, and this time around stymied by weakness in Canada and Russia, among other areas.

In this latest quarter, then, cost control reigned supreme, as the company managed to keep the amount that it pays to incentives (to clients) down, and thus operating expenses rose much more slowly than the top line.

The levers of cost control mean that Visa maintained guidance, with at least 10 percent revenue growth expected in the current fiscal year. But that comes with a caveat, as management noted on the conference call that weakening global macro trends, especially in emerging markets, and in China, may bring the company to be – in the words of an analyst who used the term during a question and answer session – “cautious.” Of course, additional weakness could bring that guidance down, but Wall Street for now remains cheered that at least the boom did not get lowered on Thursday.

No real news appeared on the call about the state of the Visa/Visa Europe tie up, with the exception of the acknowledgement that the deal proceeds apace, and that two of three regulatory hurdles have been jumped.

Looking at the international landscape, Visa management said that weakness in consumer spending is becoming apparent in the Middle East. In reference to the United States, the U.S. holiday season spend was roughly the same as last year, but more transactions are being done online and now stand at a quarter of all spending done in the U.S. during the period and up from 20 percent a few years ago.

With reference to Visa Checkout, the company noted that it is “encouraged” by the uptake in that services and that it now has 10 million users in 16 countries, 600 partners and 250,000 merchants accepting it. Management cited data on the call, including figures from comScore, that show that sales conversions for consumers using Visa Checkout remain better than those rates seen with other eCommerce networks. The transition to chip cards in the wake of EMV in October remains strong, the company added in remarks on the call.

Visa CEO Charlie Scharf also mentioned the card network’s recently launched Visa Commerce Network, which — through partnerships with Uber, Shake Shack, Regal Entertainment Group and others — enables merchants to offer targeted discounts and benefits to cardholders. The platform was built on the TrialPay platform, which Visa acquired in 2015.

“Visa Commerce Network enables our merchants to deliver targeted discounts and benefits to Visa cardholders in order to acquire new customers and increase sales,” Scharf said.

“Visa cardholders receive these benefits seamlessly by simply using their Visa cards to make purchases,” he added. “No coupons or codes are required.”

Visa released furthered details on Visa Commerce Network in a release Friday (Jan. 29) morning. Get the full details here