Four Key Points from Visa's FQ109 Conference Call

From Visa’s FQ109 conference call: (V)

Americans are spending, but within their means:

US consumers continue to more frequently use debit as a method of payment. In addition we also saw growth in credit products outside the United States particularly in emerging markets.

Credit cards grew 6% to 812 million cards while debit rose 14% to 864 million cards. Importantly international growth of 16% remains very healthy.

While payment volume and average ticket sizes are moderating in the face of much more difficult economic times our transaction counts which are an important component of our net revenue are growing very well as the underlying secular shift to electronic payments and more precisely to Visa continues.

Our transactions are up and they appear to be up because we appear to be taking share from cash and checks in categories in the quick service restaurants, in the bill paying categories which are often larger dollar amount transactions, in supermarkets and wholesale retail chains and so forth and so on.

Other industries:

Notable growth rates in other categories of spend like recurring bill pay, quick service restaurants and health care. All of these categories tend to favor debit over credit in this environment which underlies some of the resilience of that product.

Quick service restaurants and categories like that are increasing more rapidly than high end retail or travel or airlines.

Not everyone benefits from falling oil prices:

[Gas prices] are around $1.70 a gallon right now, so there’s a huge drop in the price of gas and gas accounts for about 10% of our total payment volume across both categories... So you have 10% of your volume where the cost of a gallon of gas is off by 40%, 45%. That obviously will not be the case in 2010 assuming everything stays the way it is.

Lower advertising costs across the board:

Q: Can you characterize the level of your marketing spend that’s tied to contractual obligations versus what’s completely discretionary?

A: The majority of our marketing spending is discretionary not non-discretionary… The traction that we’re getting on marketing spend is mostly related to the efficiency of what we’re doing today as opposed to what we did a year ago… and frankly the lower cost of different types of media.

===========

To read the full conference call transcript, click here. Seeking Alpha offers excerpts from our free earnings transcripts every day. To view other excerpts or to add the service to your watchlist, click here.

Comments

[JC09058:]

I love this company and I think Debit/Gift cards are a great idea. Back in the 90's Visa and Mastercard came to the conclusion that removing cash from customers wallets was the was to build their business. It was advertised as convenience and it is all about convenience too.

Merchants bought into this for the same reason because it meant less actual cash in the till in case of theft and yet greater cash flow because of convenience. This is true for the customer as well. Consider the 'bad old days' when you HAD to carry around very large amounts of cash when you go shopping. Or worse, when you ran out of cash and the banks were closed.

Visa and Mastercard business is about those transaction fees they get every time a credit/debit/gift card is swiped. From 1/2% to 1 1/2% each and every time. The lets not forget the amount of the purchase as well. Visa and Mastercard get a little bit more when the transaction is above a set value as well.

Plus there is the fees they get for the Point-of-Sales machines you must have as a merchant. As well as yearly fees to maintenance those machines and the connection too. Lastly, They don't loan money out. None at all.

As long as plastic in the new money then these companies will make money, even during a recession or depression. Remember this every time you use that small bit of plastic to buy a candy bar, coffee or a meal. That's more money to them and money to me as well.

Why? Because, I own their stock, the share price reflects it's continuing growth and I like getting paid to own their stock through a dividend. So, my personal thanks to everyone that uses plastic money. Thank you!

Feb 06 08:50 AM

[User 352167:]

....i understand your point, but if unemployment is rising and housing continues to fall in price, why would consumers increase their spending, regradless of credit or debit cards?

thus, shouldn't MA and V revenue be down y/o/y?

these stocks seem to go up based on short covering, not long buyers.

Feb 06 09:18 AM

[Mong:]

There are two competing trends here, user352167 :

a. the much vaunted "secular trend to plastic".

I personally believe this has some merit to it. Particularly, with regard *small payments*. Ie, no more fiddly change, hence much quicker thru-put at the tills, and less stressed-out cashiers. This is one area Mastercard (and/or Visa) should pay attention to.


A very good area to move into.


b. Against the above mentioned trend is the recession, which points to lowered (or indeed, more accurately thus far, FLAT) spending. This is shown up in MC's/ V's figures.

This is a difficult case, as two conflicting trends present themselves.

Speaking personally, I think trend (a) has a good chance of winning out, and this would be manifested in stock price movements from *time to time*.

This stock is not immune to the current depression at all.


[e-mail]

Feb 06 12:05 PM

[SoCalsurfbum:]

Just because every one agrees with you on how great the Visa business model is does not mean it is a good investment. Everyone gets it...

But at the current price, get real. Visa is a mature business in a well developed market, yet current pricing is assuming they will increase the size of the company by 4-5 times (which is what they will need to do to justify this price). Looks like Google at $700 to me.

Their big growth push is in $3 transactions? You need 10 of these to match one $30 purchase. How much of a boost can this possibly give to earnings? Their marketing costs vs. earnings on these low-end transactions can not be anywhere as profitable as their traditional business.

Feb 06 03:24 PM

[Mong:]

Hello SocalSurf

a. regards issue of $3 transactions.

MacDonald's (ticker : MCD) turnover consists of a lot of such transactions, between $1.50 and $6, (or possibly more).

If MasterCard had say 10% of such transactions, that would do very well.

b. Marketing costs for small transactions.

Its probably not necessary for a huge marketing budget. Being able to settle little bills would be immediately obvious when you get into the joint.

c. The international market (vs supposedly mature markets)

Not withstanding the maturity of developed markets and the scope in such markets for small transactions, the international market offers potential too.

Small transactions like bus fares, soda drinks, automated coffee vends, are all good things.

(a), (b) and (c) are a compelling business idea, but as you correctly point out, the valuations are a perpetual problem, esp in this market.

Feb 09 10:47 AM