Visa Returns Capital as Growth Continues


Visa reported net income of $1.3 billion, or $1.92 per diluted share for the second quarter of its fiscal year on Wednesday. Operating expenses grew by 13% from the comparable year ago quarter, as the company invested in various technological initiatives. Although Visa and similar networks are now in a strong competitive position, resulting in a wide moat rating, technology is a perennial threat to their business models. Many analysts don’t think the company can afford to cut back on spending in this area.

In spite of changes in pricing in response to the Dodd-Frank Act, Visa’s net revenue growth managed to keep pace with gross revenue growth. Service revenues grew 10% during the year, thanks to an 8% increase in payment volume, and a favorable mix shift. Data processing revenue was up 25% as a result of the aforementioned changes, while c lient incentives rose by 14% during the year, to $567 million, while gross revenue was up by 14.6%. This indicates that Visa is not suffering excessively from competition at this point, and we may reassess our moat trend rating.

Visa bought back $1.8 billion worth of stock during the quarter. Though investors don’t feel the stock was significantly undervalued, we appreciate the pace of the buyback relative to the company’s market cap and free cash flow.


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