Visa steady despite cooling consumer climate

23 Aug 2022 05:47 PM

Visa steady despite cooling consumer climate

Visa’s share price saw a spike in volatility last month when the company posted its third-quarter earnings. Revenue in the three-month period increased by 19% on a yearly basis to $7.3 billion, beating forecasts by 3%. The EPS rose by 33% on an annual basis to $1.98, topping the $1.73 forecast. Judging by the update from the credit card company, consumers are content to go out and spend money, international travel has picked up too. In fact, cross-border spending activity exceeded the 2019 level. This all contributed to a solid performance in the three-month period. Processed transactions increased by 16% on the year to 49.3 billion. Services revenue grew by 13% to $3.2 billion, data processing revenue increased by 8% to $3.6 billion. International transactions revenue came in at $2.6 billion, up 51% on an annual basis, but that would have been coming from a low start because there was major travel disruption caused by the pandemic. Either way, the group is performing well across the board.

In recent months, there has been growing concern for the health of the global economy. Inflation levels are on the rise, interest rates have jumped and consumer reports – retail sales and consumer confidence survey’s have been subpar. Despite all the doom and gloom headlines, Visa’s latest set of numbers do not reflect that situation. Central banks around the world are hiking interest rates as a way of getting inflation under control. At some point, the rise in the cost of living, as well as well as higher borrowing costs, will probably impact consumer’s habits, and in turn hurt Visa’s business. On the other hand, companies like Visa typically benefit from higher interest rates as their lending margins improve. Visa confirmed that net interest expenses fell by 15.3% - which essentially means the net lending margins worked in their favour by 15.3%. The credit card group is already seeing the effects of higher costs as operating expenses increased by 15% to $2.4 billion as administration and general over-heads ticked up. The long-term debts and total assets increased by 2.8% and 3% respectively. Cashflow is very strong as it was $5 billion, up 18.5% on the year. Visa rewarded its shareholders by paying out $798 million in dividends, and $3.3 billion was spent on share buybacks.

Visa’s share price set an all-time high by clearing $252.00 in July 2021, and then it underwent a broad decline for 11 months. In June, it briefly dropped below $186.00, which was its lowest level since November 2020. In the past two months, the stock has risen by 9%. While it stays above the $200.00 mark, it is possible the bullish trend will continue. The $225.00 zone might act as resistance and if that is cleared, it might target $235.00. A fall below $200.00 might bring the $193.00 area into play and beyond that, support might be found at $186.00.

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