Visa Inc.’s (V) fiscal second quarter 2010 (ended March 31, 2010) GAAP earnings of 96 cents per class A common share were ahead of the Zacks Consensus Estimate of 91 cents. This compares favorably with the earnings of 71 cents in the year-ago quarter.
The results for the quarter primarily benefited from transaction growth, driven by Visa’s payments network and processing capabilities. Also, the overall economic hangover and new U.S. regulations have led to increased use of debit cards instead of credit cards. As a result, revenues rose across all categories. Growth in data processing and international transaction revenues was significant during the reported quarter.
Visa’s GAAP net income for the quarter came in at $713 million, up 33% from $536 million in the year-ago quarter. Total operating revenues for the reported quarter were $1.96 billion, up 18.9% from $1.65 billion in the year-ago quarter.
Service revenues increased 10.1% year-over-year to $885 million and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity:
Data processing revenues rose 33.8% over the prior-year period to $728 million. International transaction revenues, which are driven by cross-border payments volume, grew 22.2% over the prior-year quarter to $545 million. Other revenues, which include the Visa Europe licensing fee, were $173 million, up 16.9% over the year-ago quarter. Volume and support incentives, which are a “contra revenue” item, were $372 million, representing 16% of gross revenue.
On a constant dollar basis, payments volume increased 13% year-over-year to $745 billion. Total processed transactions carrying the Visa brand increased 14% year-over-year to 10.6 billion. Cross border volume, on a constant dollar basis, grew 12% year-over-year.
Total GAAP operating expenses for the reported quarter increased 9% year-over-year to $837 million. The increase was primarily a result of rising litigation provision, marketing, administrative and personnel expenses.
At Mar 31, 2010, cash and equivalents, restricted cash and available-for-sale investment securities were $6.3 billion, which includes $1.4 billion of restricted cash for litigation escrow. Operating cash flow was $580 million while total shareholders’ equity was recorded at $23.98 billion.
Share Repurchase Update
During the reported quarter, the company repurchased 2.8 million shares at an average price of $83.61 each for a total cost of $231 million. The share buyback was processed under the $1.0 billion share repurchase plan that the board of Visa had authorized in Oct 2009, to be carried through Sept 30, 2010. At the end of the reported quarter, $336 million remained available for repurchase under its existing share repurchase authorization.
Business Update
On Apr 21 2010, Visa entered into a definitive agreement to acquire CyberSource Corporation (CYBS), a leading provider of electronic payment, risk management and payment security solutions to online merchants, for a cash payment of approximately $2.0 billion, valuing at $26 per share. With over 295,000 merchants and clients — including British Airways, Home Depot, Facebook, Google Inc. (GOOG) –CyberSource processes approximately 25% of all eCommerce dollars transacted in the U.S. The deal is expected to be closed in Visa’s fiscal fourth quarter of 2010.
The acquisition is a part of Visa’s long-term growth strategy, which will expand its exposure in the rapidly developing eCommerce industry. This will not only boost the revenue growth but will also increase the company’s merchant and clientele base across the globe but will also ensure reduction in monetary loss from fraud. It would also provide them with fast and efficient connectivity to multiple payment networks. Hence, CyberSource is expected to be a feather in Visa’s cap in the long run.
Guidance
For fiscal 2010, Visa reiterated its annual net revenue growth projections in the range of 11-15%; annual operating margin in the mid to high 50% range; GAAP tax rate in the range of 36.5-38.5% and capital expenditures of about $200 million. Further, the company re-affirmed its volume and support incentives to be in the range of 16-17% of gross revenue; advertising, marketing and promotional expenses to be less than $1 billion; annual earnings per share growth of greater than 20% and annual free cash flow to exceed $2 billion in fiscal 2010.
For fiscal 2011, Visa projects annual earnings per share growth to exceed 20% and annual free cash flow to surpass $2 billion.
Dividend Update
On Apr 20, the board of Visa announced a quarterly dividend of 125 cents per share of class A common stock (determined in the case of class B and class C common stock on an as-converted basis) that will be paid on Jun 2, 2010 to all holders of record as on May 14, 2010.
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