Why Visa Stock Falls Despite Strong Quarter

The quarterly earnings were a bit of a good news/bad news scenario. Visa (NYSE:V) — Or perhaps it’s more like good news and slightly disappointing news.

The good news is that Visa easily beat revenue and revenue estimates and had a solid quarter overall. The slightly disappointing news was the 2024 outlook, which sent the company’s shares down about 2% after markets opened on Friday.

Flexible consumer spending increases payment volume

In its first fiscal quarter of 2024, Visa reported revenue of $8.6 billion, up 9% year over year, net income up 17% to $4.9 billion, and earnings per share up 20% to $2.39.

Visa was driven by an 8% year-over-year increase in payment volume across its network, with consumers spending $3.3 trillion in the quarter. Cross-border transaction volume increased 16%, and the number of transactions processed increased 9% to 57.5 billion. Although strong, payment volume and transaction growth were slightly lower than analysts expected. Additionally, net income soared as operating expenses fell 6% in the quarter.

“Consumer spending remains resilient,” Visa CEO Ryan McInerney said in a statement. “Going forward, we will continue to see significant opportunities across consumer payments, new flows and value-added services.”

Visa has also been busy with acquisitions, including signing a deal to buy Mexico-based payments processor Prosa last quarter. It also closed its previously announced transaction to acquire Pismo, a company that provides issuer processing and core banking in Latin America, Asia Pacific and Europe. Essentially, the company helps customers launch payments and banking products within a single cloud-based platform.

Other highlights during the quarter included $3.4 billion in share repurchases, or 14 million shares at an average price of $239.45 per share. Visa also maintained its dividend at 52 cents per share during its 16th consecutive year of increasing its annual dividend.

Outlook surprises investors

There was definitely a lot to like about the earnings report. Especially when combined with Friday’s news that U.S. gross domestic product (GDP) grew 3.3% last quarter and 2.5% in 2023. Both numbers were better than expected. So you might think stocks like Visa, capitalizing on consumer spending and a strong economy, would soar.

However, the slightly disappointing news is that Visa’s second quarter growth forecast is slightly lower than investors had expected. Visa called for mid- to high-single-digit revenue growth in its fiscal second quarter, slightly lower than the 11% growth seen in the same quarter a year ago. Meanwhile, the company’s operating expense guidance is low double-digit growth, equivalent to the second quarter of fiscal 2023.

For the full fiscal year, Visa calls for high single-digit to low double-digit revenue growth, roughly in line with 2023 net revenue growth.

The selling after earnings appears to be a short-term overreaction by investors. Visa is in good shape, and should the positive economic momentum continue to surprise us in 2024, we’ll be in even better shape.

Visa remains a reasonably valued, high-margin company as a leader in its field protected by an economic moat. It remains a solid long-term buy.