Introduction
Final FY2017 numbers have been reported for Visa (NYSE: V) and FY2018 is now underway. I previously wrote an article proposing my thesis that growth will slow (not stop) starting with Q1 FY2018 numbers and now that FY2017 is in the books, I’ll be taking a clinical approach into this thesis as we approach Q1 FY18 numbers.
As expected, Visa just recently reported another great quarter for Q4 FY2017 with beats on both the top and bottom line to round out the fiscal year. EPS and revenue estimates were beat by $0.05 and $230 million, respectively. Visa had set new to all-time highs of ~$110 per share leading into the earnings report. Despite these beats on both the top and bottom line numbers, the stock responded in a relatively muted fashion. Investors have been accustomed to year-over-year quarterly growth in the double digits over the past year, specifically post Visa Europe acquisition and integration. For year-over-year revenue comparators post Visa Europe integration, FYQ4 2016 growth was 19% followed by FY2017 revenue growth with FYQ1 at 25%, FYQ2 was 23%, FYQ3 was 26% and FYQ4 was 14%.
FYQ4 2017 is a far departure from the previous 4 quarters of growth. Visa’s management is now forecasting revenue growth in the high single digits with EPS growth in the mid-teens, artificially high due to share buybacks. This forward-looking revenue growth rate is a shape divergence from the past year-plus revenue growth numbers investors were enjoying yet appears to be the new normal moving forward. As I posited previously, Visa’s growth rate will be slowing, now confirmed by Visa’s management and is thus misaligned with the stock’s 41% YTD appreciation, P/E ratio, PEG ratio and overall growth prospects.
Lather, Rinse and Repeat Until Growth Diminishes
Visa’s management has been utilizing the same statement with regard to revenue growth each of the last five quarters post Visa Europe acquisition. However, with the most recent quarter, there’s a caveat, management has now stated that growth will slow to the high single digits moving forward.
Per Visa’s FYQ4 2016 earnings report:
Net operating revenue in the fiscal fourth quarter 2016 was $4.3 billion, an increase of 19%, driven by the inclusion of Europe and continued growth in payments volume and processed transactions.”
Visa’s FYQ1 2017 earnings report:
“Net operating revenue in the fiscal first quarter of 2017 was $4.5 billion, an increase of 25%, driven by the inclusion of Europe and continued growth in processed transactions and nominal payments volume.”
Visa’s FYQ2 2017 earnings report:
“Net operating revenue of $4.5 billion, an increase of 23%, driven by inclusion of Europe and continued growth in payments volume, cross-border volume and processed transactions.”
