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  • Earnings
  • disruptive innovation

Will the Visa share price benefit from a rebound in consumer spending?

The Visa [V] share price reached an all-time high of $250.46 on 16 July. Fuelling investor optimism has been a rebound in consumer spending as people look to flash the plastic once again and some big acquisitions in the fintech space as the company looks to diversify its product line up. To get to that high point, the Visa share price has surged 13% so far this year, and 6% over the past month.

Despite the Visa share price now trading just below its all-time high (it closed 23 July at $249.02), its share price could make a sustained break past the $250 level if upcoming third-quarter numbers deliver. And with rivals already posting big numbers this earnings season, the omens are looking good.

 

What could move the Visa share price post-earnings?

Visa’s share price all-time high was likely helped by the acquisition of open banking platform Tink. The Stockholm-based fintech start-up offers a single API that allows customers to connect their apps and products to user bank accounts.

Any update on the acquisition will be on investors’ minds — as will updates on Visa’s overall mergers and acquisition strategy, with the company agreeing to pay £700m for London fintech CurrencyCloud. For Visa, the Tink acquisition comes after its failed takeover of US open banking platform Plaid. By acquiring the company, Visa will open a new revenue stream as it seeks to become less reliant on its transaction-based business. The deal isn’t cheap, though, with Visa shelling out over $2bn to purchase Tink.

$2billion

Valuation of Visa's purchase of Tink

  

Beyond the Tink acquisition, Visa is looking for an increase in consumer spending as the economy rebounds following the COVID-19 pandemic. Easing of travel restrictions and hospitality should help with this.

Piper Sandler analyst Christopher Donat upgraded Visa back in March from overweight to neutral. Among Donat’s reasons include a “vaccine-driven” recovery in the US, with stock looking cheap compared to rival Mastercard [MA]. Donat moved his price target from $234 to $260.

Signs of a recovery in consumer spending were in evidence in second-quarter results. In the quarter ending in March, payment volume grew 11%, with processed transactions up 8% year on year. Visa said that both metrics were up 16% compared to the same period in 2019 as it sought to make a comparison to the pre-pandemic world.

Cross-border transactions will also be an area to watch. In the previous quarter, these declined 11% so shareholders will be hoping for a recovery. And keep an eye out for crypto-linked card usage. At the start of July, Visa said over $1bn of cryptocurrency was spent on these cards in the first half of 2021.

$1billion

Valuation of cryptocurrency spent on crypto-linked cards in first half of 2021

  

Research from Mastercard suggests that 93% of North Americans plan to use crypto or some form of emerging payment technology over the next year. Any insight from Visa on future trends surrounding these payment methods should make for interesting reading.

 

When is Visa posting Q3 earnings?

27 July.

 

What does Wall Street expect?

Wall Street expects Visa to post earnings of $1.34 a share, up from $1.07 seen in the same period last year. Revenue is forecast at $5.85bn.

There’s bound to be some optimism out there with rival American Express [AXP] beating expectations this earnings season on the back of a rebound in consumer spending. The credit card company delivered revenues of $10.2bn in second-quarter results, up 33% from the same period last year.

“We saw card member spending accelerate from the prior quarter and exceed pre-pandemic levels in June, with the largest portion of this spending growth coming from Millennial, Gen Z, and small business customers” - Stephen Squeri, Amex chair and chief executive

 

“We saw card member spending accelerate from the prior quarter and exceed pre-pandemic levels in June, with the largest portion of this spending growth coming from Millennial, Gen Z, and small business customers,” said Stephen Squeri, Amex chair and chief executive.

Shareholders will be hoping for something similar when Visa posts its second-quarter numbers this week.

Among the analysts tracking the Visa share price on Yahoo Finance, the stock has a $268.97 average price target. Hitting this would see a 7.6% upside on 23 July close.

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