Categories Analysis, Finance

Hit by travel slump, Visa (V) to focus on cost efficiency, strategic investments

On track to step up investment in key areas of the business this year and beyond, tracking the trajectory of the recovery

The falling passenger traffic that left aviation companies grounded during the pandemic days is having a rippling effect on other businesses and the credit card industry is one of them. Most credit card service providers are affected by the travel crisis as a major share of their revenue comes from cross-border payments.

Visa, Inc. (NYSE: V) has been feeling the pinch of the disruption in the travel and hospitality sector since the virus outbreak and does not expect the situation to improve meaningfully in the near term. The management withheld its regular guidance while reporting the latest quarterly numbers, thanks to the deepening uncertainly.

Mixed Outlook

The executives cautioned that the weakness in top-line performance would persist through the first half of fiscal 2021. However, they expect things to change for the better in the second half, with revenues recovering and gathering pace towards the end of the year.

“..Our strategic focus in 2021 remains the same; accelerating our growth through consumer payments new flows and value-added services all while fortifying the key foundations of our business model, our brand, security technology, and talent. In consumer payments we’ve had success with traditional financial institutions, wallets, and FinTechs as well as merchants,” said Visa’s CEO Alfred Kelly while discussing the company’s fourth-quarter results with analysts.

Buy Visa?

The recent moderation in valuation has made Visa more attractive to investors and most analysts feel there is good investment potential. Experts are of the view that the stock is on its way to breaching the $200-mark within a year.

Meanwhile, the company is busy taking steps to stay relevant in the rapidly changing marketplace that witnessed a spike in e-commerce adoption and cloud migration during the pandemic period.

Visa Q4 2020 earnings

The management intends to channelize investments with focus on the unfolding opportunities in digital payment, while also adopting measures to reduce costs. Encouraged by its successful partnerships with payment service providers in Europe and Asia, the company is pursuing more tie-ups, especially in areas like virtual cards and contactless payment.

Weak Q4

Hurt by the COVID-induced slump, fourth-quarter revenues dropped 17% annually to around $5 billion. Consequently, there was a 23% decline in adjusted earnings to $1.12 per share. While volumes remained weak outside the U.S, due to the unusually low passenger traffic, there was a sequential increase in total processed transactions. Though the results topped expectations, the stock slipped as the market was not impressed by the overall performance.

To be clear, while our business faces clear uncertainty we have too many attractive growth initiatives to pull back in the future. Our long-term strategy which we covered in-depth just eight months ago at our Investor Day remains more relevant than ever. And I believe Visa has a tremendous opportunity to continue to transforming secure, reliable, and efficient money movement for everyone, everywhere.

Alfred Kelly, chief executive officer of Visa

Peer Performance

Elsewhere, rival credit card firm Mastercard (MA) last week said its profit increased in the most recent quarter despite an unimpressive top-line performance. The company expects revenues to recover in the near term, supported by the improvement in domestic spending seen towards the end of the quarter.

Read management/analysts’ comments on Visa’s Q4 2020 earnings

Earlier, Visa’s stock bounced back from the virus-induced sell-off and climbed to an all-time high in August. After retreating from the peak, it remained low through last week’s earnings release. Currently trading close to the levels seen at the beginning of the year, the shares moved up about 5% in the past twelve months.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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