Earnings Preview: Visa Expected To Post Another Strong Quarter

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Visa

Visa (NYSE: V) is set to report earnings for the second quarter of fiscal year 2017 on Thursday, April 20. The payments company reported an extremely strong first quarter in the fiscal year 2017. Its operating margin expanded by 230 basis points on the back of a 25.1% increase in revenue. Moreover, the company increased its expenditure on both client incentives and sales and marketing related activities. The former grew by 32% and the latter by 12.4%. This shows that Visa is in an extremely strong position where its arsenal of advanced technologies, impressively scaled network of co-branding partners, near universal acceptance of credit and debit cards issued by the company, and efforts to push the frontier of payments technologies on the web, offer great payoff for investors. Additionally, the company is investing further in opportunities it sees as profitable to continue growing in the future.

We break down Visa’s valuation into four divisions — transaction fees on domestic transactions, assessment fees, international transaction fees, and other services, such as identity protection and theft protection fees. Visa processes more payments on its network than any other company and has more credit and debit cards in circulation, too. However, the company can still do things to expand the number of transactions processed on its network. For this purpose, its 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 the former system where customers pay merchants with either cash or credit cards either in-person or online, 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). There is still considerable scope of making online payments more secure while also improving user experience for customers. Master Card’s recent acquisition of Nu Data Security poses a challenge for Visa on this front.

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 another 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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