Visa Inc has just posted another strong quarter, posting an 11% year-on-year increase in net profit to $1.4bn in the process beating analyst forecasts, writes Douglas Blakey
Visa retains one of the strongest business models and will continue to benefit from customers’ migration from cash to card. And yet the Visa Inc share price continues to bump along and has actually fallen by around 3% from its start of year price of $220. So why is the market so unimpressed with Visa’s fiscal 2014 performance?
I have written elsewhere that v.me was not exactly a winner and there is obviously a concern as regards international uncertainty (especially in Russia). On a positive note, Visa Checkout may offer greater scope than V.me and earnings from Russia constitute a small percentage of international profits. Visa’s international figures in Q3 were not too shoddy all things considered. Transactions processed over Visa’s network totaled $16.7bn in the fiscal third quarter, an 11% increase over the prior year period with US figures growing by 9% while international delivered 20% growth.
Third quarter highlights for Visa included renewal of a multi-year issuing deal with Royal Bank of Canada. Also in Canada, Visa’s deal with CIBC was worthy of mention. Visa agreed a co-branding with Tim Horton for a no fee rewards product featuring real-time awards called the Double Double Visa Card. It leverages dual button technology that combines a CIBC Visa Credit Card for payments with a classic Tim Card for rewards. Cardholders press the CIBC Visa button on the front of the card to pay for their purchases or they can choose to press the Tim Card button and then use the same card to redeem their Tim cash for their coffee at Hortens. Other quarter highlights included Visa renewing partnership deals with China Industrial Bank, China Minsheng and Shanghai Pudong Development Bank. Few firms than Visa are better placed to cash in on the drives towards bringing digital payments to the physical world and enabling digital payments in the connected world. The launch of Visa Digital Solutions, designed to enable retailers, financial institutions and developers to create new ways to pay via mobile devices is one of the more interesting announcements of the month.
But in the coming weeks, it is Visa Checkout that will grab headlines. One can expect to see wall to wall advertising to promote Checkout. Visa has talked of a determination to ensure that it is hard for consumers not to know about Visa Checkout and why they should use the service. Expect to see Visa leverage its reputation for security in its marketing, the subliminal message being that new upstart rivals do not enjoy Visa’s reputation in this area.
Visa remains well placed to post growth in 15% to 20% range in the next four to five years. In the next few quarters, it seems a safe forecast that market sentiment will swing positively in Visa’s favour.