Sunday , April 5, 2020

With Visa Issuing a Revenue Warning, the Coronavirus Takes a Further Toll on Payments Companies

With some of its payments cohorts already having warned the coronavirus would hurt their businesses, it was no surprise Visa Inc. joined the crowd Monday in forecasting reduced cardholder spending would translate into lower revenues.

More signs of growing concern about the impact of the virus, officially named Covid-19, on the economy popped up Tuesday morning when the Federal Reserve Board cut its benchmark interest-rate target by half a percentage point. “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the Fed’s Open Market Committee said in a statement announcing the new federal funds target range would be 1% to 1.25%.

This image from the Centers for Disease Control illustrates the structure of the coronaviruses.

In a regulatory filing, Visa said it expects revenue growth for fiscal 2020’s second quarter ending March 31 to be 2.5 to 3.5 percentage points lower than it predicted Jan. 30 during its latest quarterly earnings call. At that time, Visa forecasted second-quarter revenue growth in the low-double digits, percentage-wise.

The virus originated in Central China, and through Feb. 20, “the most significant impact has been on travel to and from Asia,” Visa’s filing says. “This has resulted in a sharp slowdown of our cross-border business, in particular travel-related spending in both card-present and card-not-present. Cross-border e-commerce unrelated to travel has thus far not been significantly impacted, except in some Asian markets. In markets where Visa processes the majority of our transactions, domestic spending growth, both credit and debit, remains largely stable with the exception of some impact in Hong Kong and Singapore.”

The filing further notes “cross-border growth rates have deteriorated week by week since the coronavirus outbreak in China, and trends through February 28, 2020, do not yet fully reflect the impact of the coronavirus spreading outside of Asia. As such, we anticipate that this deteriorating trend has not bottomed out yet.”

On Feb. 27, PayPal Holdings Inc. said “international cross-border e-commerce activity has been negatively impacted by Covid-19” and would result in a 1-percentage-point reduction in year-over-year company revenues in the first quarter. A few days earlier, Mastercard Inc. disclosed that cross-border travel, and to a lesser extent cross-border e-commerce growth, “is being impacted” by the virus and was on track to reduce first-quarter revenue growth by 2 to 3 percentage points from Mastercard’s earlier forecast. Now Mastercard expects a year-over-year revenue increase of 9%-10%. American Express Co. also has indicated its travel-related business is taking a hit.

Coronavirus worries were a big reason share prices for a basket of 30 payments stocks tracked by Chicago-based investment firm Barrington Research Associates Inc. fell by 9.5% in February on a mean-return basis. That tumble wasn’t as bad as the negative 10.07% return for the Dow Jones Industrial Average, but it was worse than the negative 8.41% mean return for the S&P 500 Index and the negative 6.38% mean return for the Nasdaq Composite Index. “The 30-stock group got hit relatively hard,” Barrington’s report says.

The stock market rebounded Monday, but the three leading indexes dived again Tuesday morning.

In a report assessing Visa’s announcement, analyst Sanjay Sakhrani of New York City-based Keefe, Bruyette & Woods said the outlook revision “does not come as a surprise to us” given Visa’s exposure to the Asian payments markets. “Clearly, the question is how long the weakness will persist, and even though [Visa] has assumed some continued deterioration in March, there could be a larger impact,” the report says. 

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