- Visa will be releasing its Q1 2016 earnings on 28th of January.
- Visa has delivered earnings beat in three of the last four quarters.
- Visa's Europe plans will be in focus during Q1 2016 earnings.
Visa Q1 2016 earnings are scheduled for release on 28th of January. Analysts expect Visa (NYSE:V) to report Earnings Per Share (EPS) of $0.69 on a revenue of $3.63B. This represents an 8% YoY growth in EPS and revenue growth of 7% YoY. While the company had a good 2015, Visa stock is down more than 5% YTD, largely due to the collective collapse in the market.
Historically, Visa has strongly rewarded its shareholders. Visa has returned around 300% in last 5 years compared to around 85% by NASDAQ (excluding dividends). In 2015, Visa returned 17% compared to Master Card’s 13% and -25% for American Express (NYSE:AXP). While in the beginning of 2015 both Visa and Master Card were seeing similar stock performance, by the end of the year Visa had pulled ahead of Master card.
Visa stock performance is supported by its fundamentals, growth opportunities and its earnings performance. Visa has delivered an earnings beat in three of the last four quarters, with the latest quarter being the exception. Visa missed last quarter earnings by $0.01.
Source: Yahoo finance
In Q4 Visa’s revenue grew by 10.6% YoY, compared to a 1.1% revenue growth at Master Card. Over the last five years, Visa revenue have grown at an impressive 11% CAGR. Visa is also a highly profitable company with a significant amount of its revenues falling to the bottom line. In the last quarter, Visa’s operating margins widened to an impressive 64%, 15% higher than in Q4 2014.
There are many factors in favour of Visa continuing its strong performance. The most important being the drive throughout the world to shift from cash based transactions to a cashless society. And while governments are the major catalysts, the shift towards digital transaction is also aided by new technologies such as mobile wallets and growth in eCommerce. Cashless transactions have many benefits including the digital trail. In the current environment where most of the governments are fighting black money, digital transactions automatically become one of the major weapons.
Currently, a huge chunk of transactions is handled in cash. According to a Mastercard (NYSE:MA) report cash still accounts for 85% of transactions. With governments encouraging their economies to go cashless, digital payment companies are bound to benefit and Visa is suitably positioned to benefit from this shift.
Another factor that could drive Visa growth is its acquisition of Visa Europe. Visa recently acquired Visa Europe for $23.4 billion. Visa will pay $16.5 billion upfront, two third in cash and one-third in stocks, with another potential payment $4.7 billion on meeting revenue and profit targets after four years. Many investors are concerned that Visa is overpaying for this deal.
Visa Europe’s revenue was around $1.2 billion in 2014 while Visa Inc. reported a revenue of $3.57 billion in last quarter alone. It is clear that Visa Europe will not add much to the top line. Where Visa expects this deal to make an impact is at the bottom line. Visa Europe’s operating profit margin stands at 26.4% compared to Visa Inc.’s 66%. Visa hopes to bring in efficiency and improve Visa Europe’s operating margin and bring it closer to its own operating margin. If Visa is successful in doing that then this deal will be an accretive one.
Visa is likely to borrow $16 billion in long-term bonds to finance this deal. While this will greatly increase Visa’s debt-equity ratio, it is nowhere near dangerous levels. Visa currently has almost zero long-term debt while its shareholders equity stands at $29.8 billion.
Visa is a stable growth company with strong financials and excellent operating margins. The ongoing shift from cash to cashless society and its Europe acquisitions are likely to act as tailwinds for growth. Investors will be looking forward to more clarity on Visa’s plan for its Europe acquisition during the upcoming earnings call.