Visa Delivers Strong Fiscal Second Quarter

Visa V delivered a strong second quarter, as the company continues to see some bounceback from its pandemic-related issues. We think the relatively quick recovery supports our wide moat rating and highlights the favorable long-term secular trend for Visa. While the decision to exit Russia will likely be a bit of an issue in the coming quarters, we think the company should be able to continue to achieve outsize growth in the near term as headwinds fall off. We will maintain our $221 fair value estimate.

Net revenue grew 25% year over year, maintaining last quarter’s rate. Payments volume was up 17%, which marked a slight deceleration from last quarter.

Cross-border volume has been Visa’s biggest issue through the pandemic, as this area generates much higher fees and is highly exposed to travel. But results in the quarter suggest an ongoing and relatively sharp recovery. Excluding intra-Europe transactions (which are priced similarly to domestic transactions), cross-border volumes grew 47% year over year on a constant currency basis, largely in line with the growth rate in recent quarters. The impact of the omicron variant appears to have been short-lived, and we continue to expect a full recovery in travel spending over time. This should drive strong growth for Visa in the near term.

Due to the rebound in revenue, Visa was able to leverage its costs and operating margins (based on net revenue) improved to 66.8% from 62.5% last year. Client incentives, as a percentage of total revenue, held steady at 25.8%, compared with last year.

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