Could Low Consumer Spending Hurt Visa?

In 2011, credit card giant Visa V saw a recovery in earnings thanks in part to a greater use of credit and debit cards in domestic and international markets. Worldwide, the increased use in plastic has in part offset a slowdown in personal spending, while extra incentives have also motivated greater credit card usage, as have more convenient services such as Visa payWave. Confidence has brought analysts to expect earnings per share of $1.45 for the quarter, up from last quarter's results of $1.27. Users of crowdsourcing financial site Estimize.com are even more optimistic about the coming quarter, with an estimate of $1.48 EPS. Revenues are expected to fall slightly to $2.45 billion on sales growth of 9% on a year-to-year comparison basis, thanks mostly to transaction volume growth driven by consumer migration to plastic over cash at the checkout. While growing use of Visa cards has set most analysts to set high price targets for the company (JPMorgan, for example, has a price target of $123 for the stock), regulatory issues create a hint of uncertainty going forwrad. Concerns remain over looming regulations from the European Commission as interchange rates for debit and credit transactions are being eyed by regulators who are concerned that the rates are unfair. Visa is more shielded from any European regulation since Visa Europe is separated from Visa Inc., while Mastercard MA would be more directly affected. Visa has no cards issued and used in countries under the EC's jurisdiction, which means it can avoid the threats of EU regulation more handily than Mastercard. On the other hand, Visa needs to worry about another regulatory action that may negatively impact its bottom line: the Durbin Amendment of the Dodd-Frank Act went into effect on October 1st, 2011, so its next earnings release will begin to reflect how this rule, which caps interchange fees to 21 cents and 0.05% per transaction. Some analysts have dismissed Durbin as having minimal impact on the company's revenue, since Visa does not generate revenue directly from interchange, meaning the rule will affect the companies only indirectly as it influences customer behavior, which may also be minimally affected by the rule, targeted more at banks than the card networks themselves. Still, the earnings result that will be announced on Wednesday will show to what extent changes in consumer behavior will affect the company's revenue. Recent news that consumer spending has slowed suggests that the company's revenue may hiccup slightly. Those sluggish consumer spending figures surprised analysts, so analysts may be surprised again to see their impact on Visa when the company reports later this week.