Earnings Review: Visa’s Strength Both Home and Abroad Boosts Its Bottom Line

by Trefis Team
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Visa (NYSE: V) reported earnings for the first quarter of fiscal year 2017 on Thursday, February 2nd. The U.S. based payments company reported a 230 basis point expansion in operating margin on the back of a 25.1% increase in operating revenue. The October-December period included many public holidays in the U.S., like Thanksgiving, Black Friday, Cyber Monday and the Christmas Holiday period. This is a period in which consumer spending increases significantly.  Now that most of this spending is shifting to the online economy from conventional retailing, which is partially based on the cash economy.  Visa’s presence at most of the checkout points at these locations meant that it capitalized on the increased consumer spending.

Over this period, a 32.1% increase in client incentives drove a 25.1% increase in revenue. The number of processed transactions on Visa’s network increased by 44% over the October-December period compared to last year’s number. The company had to spend 16.4% more on operating expenses in order to drive this increase in revenue. The increase in expenses was spread out almost evenly across all cost items- personnel, marketing, network maintenance fees, professional fees and general and administrative expenses.

visa fy16

The company’s performance was strong both in the U.S. as well as internationally. Over the quarter, the company generated more than half of its revenue from outside the U.S., which implies an increase of over 7% in the share of these markets compared to the U.S. of overall revenue (52.45% vs 45.55%). In fact, the biggest driver of revenue for the company over the quarter was cross border transaction settlement fees, which grew by 44%, while assessment fees grew by 28%.

These numbers reflect the strength of Visa’s business. Going forward, the company hopes to leverage this position to venture into newer ways of facilitating transactions online. Visa’s investment in the $9 billion startup Stripe is a sign of the same as well as the work the company has done on Visa Checkout. Additionally, getting an approval to start business in China and integrating Visa Europe into the overall business will also help the company grow its revenue. Given its efficiency—Visa’s 69.5% operating margin is just about the highest among all S&P 500 companies—this should generate a lot of value for shareholders.

Have more questions about Visa? See the links below:

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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