On Thursday, credit card giant Visa Incorporated (NYSE: V) reported first-quarter results, missing analyst estimates for the top and bottom line. The stock price fell as much as 3% in late trade and Friday’s pre-market session as the company also reported rising costs and a subdued outlook for 2020.
Earnings were just about in line with estimates. Non-GAAP EPS were a cent below analyst forecasts at $1.46, while GAAP EPS of $1.46 matched estimates. However, revenues of $6.05 billion were $30 million short of estimates, rising 10% from a year earlier.
Net income came in at $3.27 billion, up 9.7% from a year earlier. Share buybacks helped EPS to rise slightly faster at 12%.
Rising Costs Across the Board
Payment volumes were dragged lower by the UK and China, growing 8%, or 10% when these countries were excluded. Cross border volumes and processed transactions grew 9% and 11% respectively.
Operating expenses of $2.04 billion were 14% higher due to the amortization of intangible assets and acquisition-related costs. Visa is also spending more on client perks to maintain its position as the market leader. In addition, it is paying more in incentives to its banking clients. It expects these incentives to be as high as 23.5% of revenue in 2020.
Visa has been making an effort to diversify its revenue streams. The company recently bought fintech company Plaid which allows customers to link accounts from different service providers.
Outlook in Line with Current Trend
The company expects net revenue to grow in the low double digits and EPS to grow in the mid-teens. It also noted that currency volatility may affect earnings. The company also announced a new share buyback program worth $9.5 billion.
While not a weak result, this earnings release was a lot weaker than previous quarters. This was the first time in 13 consecutive quarters that Visa failed to beat bottom-line estimates. The stock is trading at historically high EV/EBITDA, EV/Sales and price to book ratios, though the earnings multiple is closer to the middle of its historical range.
Perhaps more important is how these results compare to Visa’s peers, Mastercard (NYSE: MA) and American Express (NYSE: AXP). While Visa may be struggling to maintain revenue growth momentum, Mastercard’s growth has accelerated while costs have fallen.
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