Visa is a global payments company that leads the industry of global payments service providers with a market capitalisation of $385.10 billion. Over 40 million merchants worldwide accept visa-branded credit cards, debit cards, and prepaid cards.
Before COVID-19 struck and disrupted global consumer and business markets, Visa had posted Year-over-Year (YOY) gains in adjusted Earnings Per Share (EPS) for 14 consecutive quarters. Of these, the company had nine quarters with YOY gains of more than 20%. The company also posted revenue growth for 14 consecutive quarters before Q3 FY 2020. Visa’s YOY revenues started to decline in Q2 FY 2020 dropping by 17.2%.
Then in comes, COVID-19, and the company started suffering major YOY declines in quarterly revenue and adjusted EPS. This was revealed in Q3 FY 2020 report that was released in July. The decline in Visa’s fortunes is attributed to a decline in the volume of global payments volume caused by the COVID-19 pandemic as consumers worldwide limited spending.
The company is set to release its Q4 FY 2020 earnings report today, October 28, 2020, and investors are eagerly waiting to see whether the global payments giants has turned its earnings around in the last three months as its fiscal year comes to an end. Unfortunately, analysts expect Visa to report a second straight quarter of YOY declines in revenue and adjusted EPS.
In the report, investors are more interested in Visa’s global payments volume in constant currency, which is a key metric, used to measure the company’s growth because it evens out exchange rate fluctuations and gives investors a clearer picture of the company’s performance. Unlike the previous quarter, analysts forecast Visa’s global payments volume to rebound in Q4 from a decline in Q3 FY 2020, although that growth will be significantly slower than that from a year earlier.
When COVID-19 hit, almost every company was affected but some had a clear forecast of their performance through the pandemic. This is not the case with Visa, and this uncertainty about its performance is believed to be the reason behind the company’s failure to outperform the broader market. Visa has provided a total return of 16.3% as compared with 15.3% for the S&P 500 in the past 12 months.
In mid-March, the broader market crashed and Visa’s stock price declined sharply before strongly rebounding and trading sideways until late July when the company released its Q3 FY 2020 on July 28, 2020.
The reports of 22.6% plunge in the company’s EPS led to a short-term decline in its stock but it rebounded in August all through September. It is currently trading downwards.
For Q4 FY 2020 earnings to be reported today, analysts predict a 25.9% plunge YOY in adjusted EPS. They also predict that the company’s revenues to dramatically decline by 18.6% compared to a gain of 12.9% one year prior in Q4 FY 2019.
Visa key metrics
Stock market analysts estimate Visa’s adjusted EPS for Q4 FY 2020 to be $1.09, $5 billion revenue, and a payments volume growth (Constant Currency) of 2.1%.
Investors look to focus on the YOY payments volume growth in constant currency. This measures the total value of payments taking place across Visa’s financial platforms. Payments volume growth reflects the total volume of business that the company can either monetize by fees or interest so it helps investors gauge Visa’s performance.
Currently, Visa’s stock price is $181.27 per share.