Updating Visa and ServiceNow's Q2 Results

Q2 "earnings season" is now in full swing, and we will be having oodles of earnings reports to pour over through the next couple of weeks.

Let's get things started with two of our portfolio stocks reporting this past week, Visa (V) and ServiceNow (NOW). How are these two stalwarts doing halfway into 2023?

Visa (V)

Visa is one of the more predictable stocks not only in the GreenDot Stocks universe, but the public stock market at large. It is really a bellwether of consumer spending worldwide, and its Q3 (Visa's fiscal year ends in September) results show that consumers are still spending at solid rates.

Sales grew 12% year-over-year to $8.1 billion. Growth metrics across the board were solid, with payments volume up 9%, processed transactions up 10%, and cross-border transactions growing 17%. The cross-border number was even stronger when looking at just Europe, where most of Visa's international volume originates from. That figure was 22%.

Visa continues to just churn out cash, and is putting it to use in various ways. $1 billion of it went towards the acquisition of Pismo, a card issuer and online bank that operates overseas. $3 billion of it went towards repurchasing about 13 million shares of stock, lowering share count by over 2%. $8.8 billion remains on the current repurchase authorization.

In short, Visa continues to be a steady performer. The fair value gets bumped up a few bucks to $298 (from $293 before). The stock currently trades a fair bit under that. This is one that "green dot" investors should have high on their watchlist if not already owned.

ServiceNow (NOW)

ServiceNow is a very different company but no less of a steady performer than Visa. Its Q2 results underline that. The company delivered another 23% year-over-year growth in sales, reaching $2.2 billion. Current remaining performance obligations - basically backlog for the next year - grew 25% to $7.2 billion.

Customer metrics were equally impressive. The firm ended Q2 with 55% more customers spending over $20 million a year, and 18% more exceeding $1 million in annual contract value. These "whales" are super attractive clients, as they represent ripe opportunities for expanding contracts across departments, becoming highly "sticky" customers who cannot easily migrate to a competitor.

Every firm under the sun has found a way to get "AI" into their conference calls, but ServiceNow is one that can put it to good use. AI is already being used in the company's Virtual Agent, which allows substantial automation in IT, HR, and customer service desk workflows. NOW is doubling down on AI with numerous new initiatives, and even announced a deal with hardware leader NVIDIA to develop new AI use cases.

Finally, for the first time we got news of a share repurchase program, with the board authorizing a $1.5 billion buyback to "manage the impact of dilution from future employee grants and stock purchase programs". This was kind of "meh" news to me. The time for ServiceNow to do a buyback was 6-7 months ago when it traded in the mid-$300's.... not today when it trades right about at fair value. And offsetting dilution is unimpressive - give us share count declines! I'm not convinced it is a great use of capital at this point in time.

Nevertheless, ServiceNow remains an impressive company and a great position in any investor's portfolio. I'm raising the fair value price a bit to $572 (from $564).