Visa numbers, big beat, quality company

Visa takes you places. Good timing for the release of the Visa Q3 numbers, the Olympics start tomorrow and lest you forget, they are one of the sponsors. I hope that the event organisers don't confuse the priceless pay off line, with Visa, when in actual fact it belongs to MasterCard. Ouch, that was a sideswipe at the organisers of the football last evening who confused North Korea (the people's democratic republic) and the South Korean flags. Well, at least the supreme leader/emperor seemingly got married. But we are getting off the topic here, we were talking about the Visa results. And I am pretty sure that one can't use a Visa card in North Korea, such is the "progress" there.


The full results press release is available here: Visa Inc. Posts Strong Fiscal Third Quarter 2012 Earnings Results and Authorizes New $1 Billion Share Repurchase Program. And as you can see, excluding the provisions made for the recent settlement (remember the piece Byron wrote a mere 9 days ago: Visa settles lower) the company reported net income of 1.1 billion Dollars, which translates to 1.56 Dollars a share. That is a whopping 25 percent increase on the corresponding period last year. Volumes (all payments processed) grew only one percent to 13.1 billion for the quarter. Or, 14.55 billion payments a day, roughly 606 thousand an hour. 10 thousand a minute. That is how many payments Visa processed through VisaNet in the last quarter. Now that might sound a lot, but Visa is able to process 20 thousand transactions a second.


The company bought back 4 million shares at an average price of 115.51 Dollars a share. Good job, seems like about half a percent of shares in issue, so whilst this is not a big deal, shareholders should be happy with that. Better than being diluted by big stock awards. The outlook is pretty upbeat, the company expects revenue to grow, but not by much, but I guess low double digit increases in this environment is good. And they expect the class A stock (that is the one available to you and I) to record EPS growth of 20-22 percent, somewhere in that region. The stock was up afterhours, around one and a half percent better. The forward earnings estimates that I have seen put Visa on a rather demanding twenty times forward multiple, but the expectation is that the business can grow earnings by high teen to low twenty percent numbers for the next three financial years. So, at current levels a couple of years out you are paying less than 15 times earnings. We continue to rate the stock a buy.

This is an easy mistake to make, to confuse what the company actually does, I am serious, people often make this mistake. Visa are not a bank, not an issuer of credit cards, but rather a technology company that processes payments on behalf of customers who are happier to pay electronically, rather than using some of the good old fashioned payment methods, cash and checks. Who still owns and USES their checkbook? Anyone? So basically Visa processes electronic payments and makes their money by taking a handling fee. In fact it is spelt out pretty well if you look on their about us page: "Visa Inc. derives revenue primarily from fees paid by our financial institution clients based on payments volume, transactions that we process and other related services we provide. Visa's innovations enable its financial institution clients to offer consumers more choices: pay ahead of time with prepaid, pay now with debit or later with credit products."


This is the main reason that we like the company. Many governments around the world know that there are more benefits in getting paid electronically, than by any other traditional method. I am still pleasantly surprised that no retailer (that I am aware of) has taken it upon themselves from a security point of view to give shoppers a discount when they pay with a card. Half a percent is better than a kick in the pants. Checks are being phased out. In the United Kingdom the UK Payments board has suggested that by Halloween 2018, the system that processes checks (or cheques, whichever you prefer) be terminated. Small businesses are going to have to change. And Visa is in the middle of that, benefitting as hundreds of millions of check payments become online payments. Visa could still surprise to the upside over the coming years.