This Payment Industry Giant Brings Surprises
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Visa (NYSE: V) stands to be the largest player in the global payments technology industry with a market cap of over $104 billion. The company seeks to connect consumers, businesses, banks and governments across the globe to fast, reliable and secure electronic payments.
The company reported better than expected fourth quarter performance. Both the bottom line and top line advanced their respective estimates. While the EPS of $1.82 per common share beat the consensus estimate by $0.03, revenues of $2.85 billion were $3 million ahead of its estimate. The fourth quarter revenues were 12% above the revenues of the prior year. The growth of revenues was broadly spread out between data processing, service and international transactions. Total transactions that were processed increased 4% to $14.2 billion.
On a constant dollar basis, the payments volume growth for the three months ended Sept. 30, 2012, on which fiscal first quarter service revenue is recognized, was 6% over the prior year at $1.0 trillion. Payments volume growth, for the three months ended Dec. 31, 2012, was 9% over the prior year at $1.1 trillion. Cross-border volume growth was 11% for the three months ended Dec. 31, 2012, while the total processed transactions, which represent transactions processed by VisaNet, for the three months ended Dec. 31, were 14.2 billion, up 4% over the prior year.
The first quarter of 2013 service revenues were $1.3 billion, up 13% compared to the prior year. All the rest of the revenue categories are recognized based on current quarter activity. Data processing revenues rose 17% to $1.1 billion over the prior year. International transaction revenues, driven by cross-border or international activity, grew 8% to $805 million over the prior year. Other revenues, which include the Visa Europe licensing fee, were $179 million, a 1% increase over the prior year.
Total operating expenses for the recent quarter were $1.0 billion, up 13% compared to the prior year. The surge was primarily due to higher personnel and professional fees associated with investments in technology projects to support growth initiatives.
New Share Repurchase Program
Visa repurchased 9 million shares during the recent quarter for $1.3 billion. The management at Visa authorized another repurchase program totaling to $1.75 billion, incremental to the $1.1 billion in capacity still outstanding, for total repurchase capacity of just under $3 billion. Given that the company has paid $4.4 billion towards the settlement, this results in $1.6 billion of tax benefits and significantly higher cash flow in 2013. Management indicated that while they would like to invest in their business, cash flow not needed for the business will continue to be returned to shareholders. Therefore, I expect faster share repurchase in the coming quarters.
For the fiscal year 2013, the management at Visa expects annual free cash flows of around $6 billion attributable to tax benefits to be realized during the year. Also, annual net revenues are expected to grow within the low double digits, while client incentives as a percentage of gross revenues are expected to hover within the 18% and 18.5% range. The management expects to spend $425 million to $475 million in capital expenditures during the year.
MasterCard (NYSE: MA) stands to be the second major player in the global payments industry. MasterCard, a $64 billion market cap company announced increase in its share buyback program and doubled its dividends. Around $400 million are left under its current share buyback program and the new program will become effective at the completion of the current program. Quarterly dividends increased to $0.6 from $0.3 for Class A and Class B shareholders. The company’s fourth quarter profits surged 9.7% on higher card use. This was despite the deteriorating macroeconomic situation.
MasterCard announced record growth in its contactless payments technology across the emerging markets including Asia, Middle East and Africa. At the end of the fourth quarter, the company’s contactless payment network covered around 600,000 merchant locations in over 50 countries.
Visa appears to have successfully navigated the changes in the US debit market and ensured its dominance in the US credit market. Also, Visa has demonstrated its ability to enhance margins if weaker economic actively leads to slower revenue growth. I believe Visa’s ability to grow business through organic growth and new deals support a high earnings growth rate for the year 2013. Therefore, I am bullish on the stock.
equityfinancials has no position in any stocks mentioned. The Motley Fool recommends Visa. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!