Visa Remains on Path to Recovery in Fiscal Q4

Visa’s V fiscal fourth-quarter results largely maintained the path the company has been on this year, with volume showing ongoing recovery from the impact of the pandemic. In our view, the relatively quick bounceback we’ve seen for the networks supports our favorable long-term secular view, and we think the combination of attractive long-term growth prospects and the company’s wide moat makes Visa a fundamentally attractive company. Nothing in the quarter materially altered our long-term view, and we will maintain our $215 fair value estimate.

Reported revenue in the quarter was up 29% year over year. Visa reports a portion of its revenue with a one-quarter lag, but adjusting for this, revenue growth would have been a still-healthy 22%. Gross dollar volume in the quarter increased 14% year over year. Looking at growth on a two-year basis to avoid the distortions of the pandemic suggests underlying domestic growth has actually accelerated a bit from prepandemic levels, supporting the idea that the pandemic has accelerated the transition from cash.

Visa continues to see recovery in cross-border volume, which are critical for the company, given the much higher take rate. Excluding intra-Europe transactions (which are priced similarly to domestic transactions), cross-border volume grew 46% year over year on a constant-currency basis. While the company continues to make progress, volume in the quarter was only 86% of the 2019 level, suggesting travel-related headwinds remain. However, this figure improved meaningfully from 81% in the last quarter. In our view, the recovery in travel spending and cross-border volume will be much slower, but we continue to expect a full recovery over time. This dynamic could drive outsize growth for Visa over the next couple of years.

Margins recovered as the company has been able to releverage its costs this year. Operating margins (based on net revenue) improved to 65.8% from 61.6% last year.

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