Visa’s CEO: Declining fintech valuations a ‘useful trait’ | Payment source

The fall in valuation that many fintechs are experiencing could make companies like Visa more likely to buy them than compete against them.

“There’s been a bursting of the balloon in valuations in the fintech world,” Al Kelly, Visa’s chief executive, said on Thursday’s earnings call.

Visa’s earnings beat analysts’ expectations, although company executives said the card network was watching for potential softness due to inflation or other economic pressures. For the quarter ended Dec. 31, Visa reported revenue of $7.94 billion, up 12% from about $7 billion a year earlier. Earnings per share came in at $2.18; Analysts had estimated revenue of $7.68 billion and earnings of $2.01 per share, according to Zacks.

Cross-border payments volume increased 36% to $2.87 billion in the fourth quarter, from about $2.1 billion a year earlier. It is the seventh consecutive quarter of increasing revenue and the eighth consecutive quarter of revenue growth for Visa. Visa’s stock rose about 1.5% in after-hours trading on Thursday.

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Asked by analysts whether Visa is looking to be more aggressive in mergers and acquisitions amid a potential economic downturn, Kelly did not commit to future deals, saying Visa is focusing on organic growth first. But he also noted the decline in fintech valuations. Many payment technology companies have seen their values ​​fall by more than 50% in the past year, but have also largely maintained their aggressive technology development strategies.

The trend toward lower valuations is a helpful feature of the current environment, Kelly said. “We will look for capabilities and management teams that will add more value to Visa than we can bring ourselves.”

Visa major recent acquisitions includes account aggregator Tink, a $2.1 billion deal announced in 2021 to enhance Visa’s ability to support open banking. Another deal, a $963 million purchase of Currency Cloud around the same time, has fueled Visa’s cross-border payments strategy. Other acquisitions include fintech YellowPepper, which contributes to Visa’s mobile commerce technology.

Visa closed on the Tink acquisition in 2022. Kelly cited Tink during Thursday’s earnings call as key to Visa’s strategy for value-added services, particularly in open banking. Tink recently signed an agreement with BNP Paribas and Banka d’Italia in Italy. “Tink has continued to develop and deepen relationships across Europe,” Kelly said.

Visa and Mastercard have tried to diversify their income through services. Visa reported that revenue for this part of the strategy reached $1.7 billion in the most recent quarter, up about 20% from a year earlier. This growth has helped boost Visa’s overall revenue growth, the company reported.

As MasterCard, which reported earrings earlier on Thursday, Visa said travel growth is slowing as recovery from the pandemic matures. But it also notes that China, a key market, will have a longer recovery, especially for inbound travel from markets such as the US and Europe.

Full recovery for cross-border travel for China could take three to five quarters, according to Vasant M. Prabhu, Visa’s chief financial officer. “Inbound travel to China has not improved much and may not until the COVID situation there stabilizes,” Prabhu said.

Overall, Visa reported that consumer spending has remained robust despite high inflation, leading the card network to confirm its growth forecast for the next quarter in high single digits.

“Business trends have been remarkably stable,” but there is still a lot of economic uncertainty in the months ahead, Prabhu said. Visa will make adjustments if necessary if financial conditions worsen, Prabhu said.

In a research note, Jeffries reported that Visa’s pace of US payments growth picked up again in January. Similar to Mastercard’s trends, Jeffries noted a pause in travel growth, adding that January’s year-over-year growth comparison was bolstered by a slowdown in January 2022 due to headwinds from the omicron variant of the coronavirus. Higher gas prices compared to the fall may also help Visa’s growth in January, according to Jeffries.

Thursday’s call was Kelly’s last as CEO. Ryan McInerneyVisa’s current president, will become CEO on February 1, while Kelly will become executive chairman of Visa’s board.

“I can’t think of a better leader to continue to put Visa at the center of the money movement,” Kelly said.