Earnings Preview: What To Expect From Visa In FY 2017

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Visa (NYSE: V) is set to report earnings for the first quarter of fiscal year 2017 on Thursday, Feburary 2nd. The company reported an 8.7% increase in operating revenue in the previous fiscal year, which translated into a 26.3% increase in earnings per share for the full year excluding the impact of the costs incurred in the Visa Europe framework agreement settlement. On December 1st, the company changed CEOs. Previous CEO Charlie Scharf enjoyed an extremely successful spell, as the company’s revenue increased from $10.4 billion annually to $15.1 billion, with the number of Visa card holders growing by nearly 25% over the 2012-2016 period. The new CEO, Alfred Kelly Jr., takes over the company in great shape and primed to experience strong growth as the economy transitions from being a predominantly cash and point-of-sale driven one to a digital one.

In the first quarter of this fiscal year, Visa’s core business is expected to remain strong. The company facilitates transactions through its payment network and generates a fee for each transaction that is proportional to the value of the transaction. The company also generates a fee for assessing the validity of these transactions and for allowing cross-border transactions. In addition, the company also offers a host of services that it earns revenue on. Since, Visa has nearly 2.5 billion card holders and they are spread out in all income categories, the company is less vulnerable to economic downturns than other payment networks companies. This ensures a steady cash flow stream for itself.

Currently, the company’s focus is on increasing the presence of its products and services to all possible points of transactions. The range of transactions being made is increasing from former system where customers pay merchants with either cash or credit cards to a new system that used a whole host of payment services like wallets, checkout gateways and services that handle payments in the background (Paypal, Stripe). Because of this, Visa has a huge opportunity to expand its revenue generation capacity. In addition, the company has to figure out how to make its way into the Chinese market and integrate its European operations, which it acquired for $ 23.4 billion last year. The company has still to receive a domestic license for operating in China, where 48% of the transactions take place with a card, implying a $8.4 trillion market. This market is almost entirely monopolized by China UnionPay Co. So, this represents a huge opportunity for the company.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Visa
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