Visa Q3 Earnings Preview: DOJ, Post-Durbin, Digital Wallet In Focus

| About: Visa Inc. (V)

Visa (V) reports Q3 earnings on July 25th.

The Street expects:

  • Revenue: $2.52 billion
  • EPS: $1.45 per share
  • Q4 revenue guide: $2.63 billion

In Q2, Visa reported $2.58 billion in revenue (+15% y/y), of which service revenue grew 14% y/y to $1.24 billion, data processing revenue grew 12% y/y to $922 million, international revenue grew 17% y/y to $733 million, and other revenue grew 15% y/y to $179 revenue. The company reported an EPS of $1.60.

Heading into the earnings, investors need to look for an update regarding DOJ's Civil Investigative Demand, Visa's debit strategy,

DOJ's CID: According to management, DOJ's recent Civil Investigative Demand, or CID, into Visa's FANF simply requires Visa to provide reports on trends every other week, and the exact nature of this investigation has to do with controlling the market rather than the price. Investors should note that the CID will likely to be an overhang on the stock for the next several quarters. However, CID is simply a subpoena to gather additional information and usually do not lead to enforcement. Under the most likely scenario, the government is only conducting a routine check on Visa and its market power since they are obligated to prevent corporations from abusing their market power.

Post Durbin Strategy: One month after the Durbin amendment ruling, Visa lost 60% of its PIN debit volume. Despite introducing a new pricing strategy and PIN authentication capability, the company continues to suffer share loss as indicated by continued debit volume decline of 8% in May, after 12% decline in April. Management has indicated that Durbin amendment will likely to continue have a negative impact on fiscal 2012.

Digital Wallet: Visa continues to expand the digital wallet program, which is currently under beta-testing, in four retailers. Management expects additional retailers to participate in the coming months. Despite lack of details, management indicated that it is focused on creating a secure and intuitive "Click to Buy" purchase option on mobile devices and PCs since can also be used on retailers' websites. Management also pointed out that targeted real-time messaging will likely be implemented in the future to drive volume. As part of its digital wallet strategy, Visa has been speaking with more than 100 major merchants and will work with CybeSource gateway, which has approximately 400K merchants. Finally, Vodafone (VOD) has agreed to provide its 400 million subscribers access to

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.