Visa Faces Debit Card Antitrust LawsuitThe U.S. Department of Justice has filed a lawsuit against Visa, accusing it of monopolizing the debit card market and violating antitrust laws. Visa, which processes more than 60% of debit transactions in the U.S., has been singled out for entering into agreements that eliminate competition and charging high fees to merchants, generating approximately $7 billion annually in fees.
The lawsuit seeks to curb pricing structures that hinder competition and prevent Visa from paying potential competitors not to launch products that challenge its dominance. In response, Visa has denied the allegations, arguing that competition in the debit market is thriving and that it will vigorously contest the claims.This case is part of the US government's efforts to control rising consumer prices, especially with regard to the fees that merchants pass on to their customers. Following the announcement of the lawsuit, Visa shares fell by 5.5%.
Financially, Visa has shown solvency in its recent results. Despite a negative first quarter with declines in EBIT (-2.91%) and EBITDA (-2.76%), the company recovered ground in the second quarter, showing growth in total revenue (+2.91%) and EBITDA (+3.04%). In its most recent report, Visa announced a 13% increase in earnings, reaching almost $10 billion, with revenue of $11.3 billion, up 8% from the previous half-year. In the first quarter, Ryan McInerney, CEO of Visa, mentioned that overall payment volume had grown 8% in the U.S. and 16% internationally. In addition, Visa had set aside $424 million to settle a class action lawsuit related to anti-competitive practices, which affected its results in the first quarter. These allegations have resurfaced as we discussed and we will have to see how the lawsuit evolves between now and the end of the year.
Yesterday's earnings report marked a new milestone for us by increasing earnings per share (EPS) by 12% following its commitment to AI growth. Net revenues of $8.9 billion, global growth of 7%, and payment volume up 5% in the US and 10% internationally. Visa Direct transactions soared 41 per cent to $2.6 billion, and new flow revenue grew 18 per cent year-on-year. Its strategic partnership renewals and expansions and value-added service enhancements, as well as investment in AI and its improved payments ecosystem and fraud reduction and sales momentum show the expectation of low double-digit revenue EPS growth and consistent payment volumes for the final quarter of the year, with a slight decline in cross-border transactions. Visa intends to take advantage of the $20 trillion global consumer payments opportunity by focusing its expansion on the pursuit of acceptance, e-commerce and innovation. On the negative side, as mentioned above, the rejection of the class action settlement by the injunctive relief class action forces Visa to seek an alternative resolution. There is also a perceived reduction in credit growth compared to debit, although this is not considered by Visa to be indicative of economic stress on the consumer. However, Visa is keeping a watchful eye on trends.
On a technical level Visa has moved in a sideways channel and with a positive Balance Sheet already yesterday started to form what could be a bullish pullback figure, this could take the company out of the current highs if the firm manages to successfully resolve its antitrust lawsuit.
Ion Jauregui - ActivTrades Analyst
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