Fintech is getting its digital financials in order in preparation for Q3, and Visa V is on deck. PayPal PYPL released its earnings after the bell yesterday (October 23rd), hitting it out of the park, beating both top and bottom-line estimates as well as illustrating its strongest sales to date. PayPal’s peer-to-peer (P2P) transactions grew substantially with Venmo alone, processing over $27 billion (over half of total P2P) in Q3 demonstrating 64% year-over-year growth.
PayPal is up over 9% in morning trading while Visa is up 1.5%, and MasterCard MA is up over 2%. PayPal’s positive results and strong transaction growth could be a signal of healthy 3rd quarter figures to come from the rest of the fintech sector.
Visa is releasing its September quarter (fiscal Q4) results after the bell this today (October 24th), and analysts are projecting the best financials to date. Zacks Consensus estimates are showing an EPS of $1.43 on sales of $6.08 billion, demonstrating growth of 18% and 12%, respectively.
Visa typically isn’t a big mover on earnings with the last 5 quarterly reports having a less than 2% impact. Visa’s investor relations team does a reliable job telegraphing expectations to analysts. Only 2 of the 10 earnings resulted in a negative price impact.
We are all familiar with Visa as the credit card behemoth that is on most of our credit and debit cards. The company works as a middle man between the consumer (the consumer’s banking account) and a business, collecting off of each transaction.
Visa’s primary revenue drivers are service revenue, data processing revenue, and international transaction revenue. Service revenue is made as a percentage of each transaction, which makes it inflation-protected, considering that prices and inflation move together. Data processing revenue is made through authorization, clearing, settlement, and other support that Visa provides on each transaction. International transaction revenue is self-explanatory; the company makes money off of cross border transactions and currency conversions.
Visa is a very international company with US transactions making up less than half of its total revenues. This makes the firm a good indicator of global economic activity, and its downside is marginally hedged by growth in digital payment processing. As more developing countries turn to digital payments, the more Visa will grow and expand its reach.
Visa has illustrated very consistent topline growth combined with a healthy expanding margin profile that outpaces its biggest competitors MasterCard and American Express AXP.
Visa is the largest credit card company in the world and continues to grow. Below is a graphic provided by WalletHub and illustrates the credit card market share by purchase volume.
All of the major credit card companies are outperforming the broader market this year, and the upcoming earnings will dictate if this can continue.
I wouldn’t recommend any action before earnings. V typically doesn’t move much due to the diligent IR team. Visa’s shares have grown very consistently, but one concern I would have about these payment processing firms are their rich valuation multiples, which have inflate with their stock prices. This could mean that a more substantial downside if the markets were to turn south.
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