Visa (NYSE: V) reported solid earnings yesterday that squeezed past most estimates. Net income came in at $0.97 per share, up from $0.51 per share in the same period last year thanks in part to a healthy dose of cost cutting. The results were also juiced by a one-time gain related to asset sales. On an adjusted basis, net income was $0.67 per share.
Good news? Sure. But let's face reality: As credit-issuing banks like Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) grapple with surging defaults, and the credit card industry as a whole faces a global consumer in retreat, Visa and rival MasterCard (NYSE: MA) are looking at a serious challenge to their once-blossoming payment processing business.
For example, look at what's happened to worldwide payment volume -- a key figure in determining revenues -- over the past year:
| Period Ending | Worldwide Payment Volume Growth |
|---|---|
| March 31, 2009* | (5.5%) |
| December 31, 2008 | (0.9%) |
| September 30, 2008 | 12.4% |
| June 30, 2008 | 15.2% |
| March 31, 2008 | 19.1% |
*Payment volume has a one-quarter lag. March 31 is the most up-to-date figure Visa provides.
That's ugly. When broken out, the debit side of transactions is still growing -- up 4% in the quarter -- but it isn't enough to stem the 10% decline in credit payment volume. Any way you spin it, the growth Visa enjoyed in years past -- and the growth many investors assume will continue in the future -- just isn't there anymore.
Visa's still a fantastic company. I can't say that enough. But I still struggle to see the catalyst that will get growth, ultimately reliant on consumer spending, back on track. The years ahead will not mimic years past: When the savings rate goes from flat to almost 7% in two years, consumers are screaming from the rooftops that they've left the overconsumption days behind. If payment volumes continue to decline, or even stabilize and stay flat, I find it difficult to rationally justify Visa trading for 24 times its 2009 earnings.
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