SEEKING ALPHA
Even with economic concerns and tighter new regulations, Visa (V) still had a strong Q1 based on service revenues, data processing revenues and international transaction revenues.
In Q1 2012, Visa reported operating revenues of $2.547 billion, up 12.1% from Q1 last year, when Visa reported operating revenues of $2.238 billion. Visa reported a Q1 net income of $1.029 billion or $1.49 per share which was an increase of 21% over Q1 last year. The profits were supported by strong double digit growth in service revenues, data processing revenues and international transaction revenues.
In Q1 2012, Visa reported service revenues of $1.151 billion. This was an increase of 14% over Q1 2011, when they reported a service revenues of $1.008 billion. The strength in service revenues was based on payments volume growth. Payments volume growth, on a constant dollar basis, for the three months ending December 31, 2011, was up 11% over Q1 last year. Q1 2012 payments volume growth was reported at $994 million while payments volume growth reported in Q1 2011 was $897 million. This signifies an increased volume use of Visa's products.
The data processing and international transaction revenues were also significantly stronger than Q1 2011. Data processing revenues rose 13% over Q1 last year to $951 million, while International transaction revenues, which are driven by cross-border activity, grew 19% over Q1 last year to $748 million.
Joe Saunders, chairman and chief executive officer is pleased with the strong start to fiscal year 2012.
Visa's core businesses drove a strong start to fiscal 2012. We achieved solid financial and operational performance as we continued to benefit from the secular shift to electronic payments. Consumers' desire to use our products is evident in the strong growth we see outside the U.S. and the resiliency we are seeing in the U.S. in the wake of debit regulation. We are in the midst of executing on our strategy to address the new landscape in the United States and we are pleased with the early results of our efforts.
Q2 2012 looks to be off to a strong start. In a recent article, the Wall Street Journal reported that "volume of U.S. card payments continued to rise in February". The report also clarifies how payments volume growth in the U.S. continues to be strong. "Total U.S. payments volume growth was 10% in February from a year ago. The volume of credit-card payments rose 15%, while debit-card payments growth was up 7%. Cross-border volume, which generates higher fees for Visa, was 20% on a constant-dollar basis. The number of transactions it processed increased 11% globally."
The Wall Street Journal article also clarifies some of the new debit regulations instilled in 2010, and how it will effect Visa and its competitor MarsterCard Inc (MA).
The so-called Durbin amendment, part of 2010's Dodd-Frank Act, limits the amount of money large banks can charge merchants every time a consumer swipes a debit card. The rule took effect in October. Another part of the rule, which takes effect in April, requires that banks offer multiple processing options on their debit cards, which will force some banks to break up exclusive deals they have with Visa.
Even with the new debt regulations, Visa has more key concerns going forward. According to Visa's forward looking-statements, Visa is concerned about economic factors such as, "an increase or spread of the current European crisis involving sovereign debt and the euro". This could be of concern for many reasons one being the "costs arising if Visa Europe were to exercise its right to require us to acquire all of its outstanding stock."
Another Economic concern for Visa is a global economic slowdown. According to Forbes.com an economic slowdown could cause "Visa's payment volume growth and processed transaction growth to be impacted by an economic slowdown in the U.S. and/or globally".
Even with economic concerns and tighter new regulations, Visa still had a strong Q1 based on service revenues, data processing revenues and international transaction revenues. Going forward into 2012 Visa predicts annual net revenue growth in the low double digits, an annual operating margin of about 60% and adjusted annual diluted class A common stock earnings per share growth in the high teens.Estimated sales = $10.26 billion
- Estimated profit margin = 40.4%
- Estimated earnings = $4.15 billion
- Shares outstanding = 797.1 million
- EPS = $5.20
- Forward P/E = 22.33
V - Visa Inc Price Target for 2012 = $116.17 USD
Action Analyst Rating Price Date Target, Reinitiate Oppenheimer Outperform $140.00 « $126.00 04/05/12 Initiate UBS Securities Neutral $124.00 03/01/12 Target S&P Research Hold $117.00 « $100.00 02/29/12 Target, Reinitiate Argus Buy $130.00 « $110.00 02/13/12
(Chart source here.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
