Visa Inc. (NYSE:V) has a terrific business model and, despite the fact that the company was created in 1958, it is still capable of experiencing rapid growth.
When Visa released its third quarter results last week, it exceeded forecasts for both sales and earnings per share. It was Visa’s eighth consecutive quarter of exceeding analysts’ revenue and EPS forecasts.
Net revenue grew by 18.7% year over year from $6,130 million in the same period last year to $7,275 million this quarter. Top line gain was mostly attributed to “International Transaction Revenues,” which rose by 51% YoY.
Operating income barely grew from $4,064 million in Q3/21 to $4,148 million in Q3/22 (a 2.1% YoY rise), but diluted earnings per share increased from $1.18 to $1.60, representing a 35.6% YoY gain. Additionally, non-GAAP diluted earnings per share rose from $1.49 in the same quarter last year to $1.98 this quarter, a 32.9% rise year over year.
But in addition to improving both the top and bottom lines of its revenue statement, Visa saw a 7.6% growth in the total number of cards from 3,646 million in the same quarter last year to 3,924 million this quarter.
With 7,869,000,000 people on the planet, Visa cards are used by more than 50% of the world’s population (in theory). Compared to $2,775 billion in the second quarter, the total volume of payments was $2,939 billion in the most recent quarter.
In addition, the company is obviously above pre-pandemic levels, as seen by the fact that the U.S. payment volume is 46% higher than the 2019 level and the global payment volume is 136% higher when indexed to 2019.
How Would Recession Impact Visa?
When examining the outcomes, we have information for two recessions: the Great Financial Crisis and the most recent one, which began in 2020 and was caused by COVID-19. We might also contend that Visa was hurt by the recession in both cases.
Revenue did not decrease during the Great Financial Crisis, although it did during the COVID-19 recession, by around 10%. We can counter that the outcomes might have been different in the absence of lockdowns and travel restrictions. Although earnings per share experienced a decrease of about 10% during the last recession, they experienced an extraordinarily steep decline during the Great Financial Crisis.
So although we shouldn’t anticipate Visa’s business to grow in the event of a recession and should instead expect it to slow down, we also shouldn’t be concerned about sharp drops in revenue or earnings per share.
Of course, in the event of a recession, the majority of people’s disposable income will be smaller and the volume of payments will decrease, which will result in lower revenue for Visa and Mastercard (NYSE:MA). However, the withdrawal may be restricted if the majority of payments volume comes from commonplace goods.
We shouldn’t dismiss the threats, but we also shouldn’t overlook the good trends the credit card giant is still observing in the United States, even though an impending recession may not always be apparent in quarterly results beforehand.
In the US, there are encouraging developments in terms of increased spending and transaction volume. The typical contactless active debit cardholder made two more purchases and spent an extra $65 each month in 2021. We anticipate that this pattern will continue, generating more payment volumes and transactions for contactless card issuers via quicker, easier POS interactions.
Strong Growth Prospects
Even if the recession is undoubtedly a concern we should be aware of, this should not cloud our perception of Visa as a business with strong growth prospects. Itss revenue climbed with a CAGR of 10.13% during the past ten years, while its earnings per share increased with a CAGR of 15.88%. Additionally, management discussed its efforts to expand its overseas company at the most recent results call. Visa is expanding quickly, especially in Brazil and India.
Also, the company renewed contracts in addition to expanding into more and more nations (which is important for the business). The largest bank in the world, the Industrial and Commercial Bank of China, and Visa renewed their collaboration in China, while Credit Saison and Visa renewed their partnership in Japan. It maintained its partnerships with Green Dot, one of the top 20 debt issuers and top 10 prepaid issuers in the US.
Featured Image: Megapixl © 777ers
