Visa Inc (V): This Payment Industry Giant Brings Surprises

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Visa, American Express, MastercardVisa Inc (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.

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