Thursday, October 30, 2014

Why Visa (V) is one of my Portfolio Champions {Earnings Commentary}

Hello World!

Visa (V) announced earnings yesterday afternoon and to say they've had a great quarter (and year) may be an understatement. Last night's report was in regards to Visa's last quarter and full year 2014 results. Before I get in to the highlights I'd like to share a little background as I have been doing with my previous commentaries.

Original Investment Thesis

I purchased shares of Visa for the first time a couple of years ago and is up over 60%. If you can find me a reliable investment that would give me 30% return per year please let me know. If I could do things differently with this stock I would have purchased a whole lot more shares than I did. I currently only have a small position. However, the assurance that I picked a true winner, nonetheless, its what makes me excited about the stock market. 

I purchased Visa for  very similar reasons why I buy most of the companies in my portfolio- strong brand, strong positioning within the industry, long term prospects, and profitability. In Visa's special case I also purchased because, as we all know, this is a company with only one "major" competitor and that is Mastercard (MA). Sure, American Express and Discovery are still out there but no one is close to competition with Visa as MA. Hence, in my eyes they only have one major competitor. I am confident that the business model of payment processing companies is extremely clever and is very hard for competitors to enter this specific space. You can read more about the business model in this post I wrote about master card not too long ago. 

I remember clearly one morning in 2012 as I was getting ready for work I was listening to news radio and they announced Visa's results pre-market. At the time, they had once again reported strong profits for the quarter. I took a "leap of faith" and bought shares pre-market as I had to get to work (I normally dont do this but with a company as solid as Visa, I felt confident it was okay to do so). And the rest is history!

Highlights of Earnings

  • Adjusted net income for this last quarter was $1.4 billion, up 14% in comparison to same quarter last year. Adjuster net income for full year 2014 was $5.7 billion, up 15% in comparison to full year 2013 results.
  • GAAP Net operating revenue for this past quarter alone was $3.2 billion, an increase of 9% in comparison to same quarter last year. GAAP net operating revenue for the full year 2014 was $12.7 billion, a nominal increase of 8% in comparison to full year 2013 results.
  • Earnings per share increase was 17% in comparison to same quarter last year while full year earnings per share increase was 19% in comparison to full year 2013. Visa's CEO attributed this stellar EPS growth to Visa's "enviable competitive position, strong business model, and great talent".
  • There appears to be an increase in usage when it comes to Visa card holders as total payment transactions processed by VisaNet were confirmed to have increased by 9%, to 16.9 billion transactions, in comparison to same quarter last year. 
  • Service revenues increased by 8% to $1.5 billion in comparison to fourth quarter 2013 and 14% full year increase to $1.3 billion in comparison to full year 2013.
  • Company has also put money aside for litigation purposes for a total of $450 million, pre-tax. This shows me this company is thinking ahead. Whether this amount is enough or not may be up for discussion but something tells me this amount was strategically agreed upon.

My Two Cents

I plan to continue being a shareholder of Visa for many years to come. I am confident that, as a leader in the payment processing industry they have what it takes to maintain their competitive advantage. Although "up and coming" competition may be fierce; Visa understands this and makes solid investments in their research and development not only to retain their position within the industry but go above and beyond. As CEO Charles Scharf noted in the press release: "Our investments in Visa Checkout, Visa Token Services, and Visa Digital Solutions are just beginning to have an impact in the marketplace. We will continue to invest in these and other areas and remain confident in our ability to capture the growing opportunity in payments."

In my opinion, companies like Visa will be benefiting strongly from new developments such as Apple-Pay and others that I am sure will follow suit. Credit cards provide convenience, even if you aren't necessarily holding the plastic and the information is simply stored in your smart phone; payment processing services will still be involved one way or another. I am looking forward to witnessing how this company continues to evolve, develop, and adapt to new technology and a "changing world" as time goes by. 

...and you guessed it, Visa also pays me a quarterly dividend of $1.92 per share (yield of 0.90%). Shares are up over 8% since market opened this morning. 

Thank you for reading!

Tell me, What are your thoughts on Visa? How many cards with the Visa logo do you currently own?

Cheers to profits,