Higher Payment Volumes to Drive Visa’s Q4 2018 Earnings

Fourth-quarter expectations

On October 24, Visa (V) is scheduled to report its earnings for the fourth quarter of fiscal 2018, which ended on September 30. Analysts project a substantial YoY (year-over-year) increase in the company’s top-line and bottom-line results.

Its improved expectations are primarily driven by higher payments volume, the strong economy, elevated spending, and higher fuel-related spending. This improvement is expected to be partially offset by a strong dollar and ongoing trade war concerns.

Wall Street expects the payment processing company to report EPS of $1.20, which signifies YoY growth of 33.3%. Its revenues are projected to increase 12.0% to $5.44 billion. Analysts expect its fiscal 2018 revenues to rise 12.3% to $20.6 billion and for its EPS to increase 31.9% to $4.59.

Higher Payment Volumes to Drive Visa’s Q4 2018 Earnings

Factors driving payment volumes

An improving US economy, as reflected by the sustained rise in the GDP, has benefited Visa (V). In the second quarter, the US GDP grew 4.1%. A healthy job market, steady wage growth, robust consumer confidence, and a lower tax rate has driven its digital payment volumes. As Visa earns fees from digital transactions made through its platforms, these factors are driving its top-line and bottom-line results.

The steady adoption of digital payment solutions in emerging economies such as India, Brazil, and Mexico aided Visa’s growth, as these governments are focusing on developing card acceptance infrastructure. Mobile and Internet penetration and integration with e-commerce have changed the landscape of the payment processing marketplace.

For the past few quarters, Visa has been working to increase the use of contactless payments in the United States as in Australia and the UK, where this payment method has been well-received. In Australia, contactless transactions account for 90.0% of the total transactions, while they account for 60.0% in the United Kingdom of the total transactions.

Peers’ expectations

Wall Street expects other payment processing companies (IPAY) to report robust YoY EPS growth. In the coming weeks, Mastercard (MA), American Express (AXP), and Discover Financial Services (DFS) are expected to report third-quarter EPS of $1.68, $1.76, and $2.05, respectively. These estimates indicate YoY increases of 25.4%, 17.3%, and 35.8%, respectively, for Mastercard, American Express, and Discover Financial Services.

In this series, we’ll study the factors that could drive Visa’s top-line and bottom-line results in the fourth quarter, strategic investments, and long-term valuations.