What To Watch For In Visa’s Q1 Earnings

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Building on its strong growth momentum over the last few quarters, Visa (NYSE: V) reported record revenue and earnings throughout fiscal 2017, which ended on September 30. The company reported a 22% year-over-year increase in revenue, net of client incentives. Shifts in exchange rates have positively benefited the bottom line, excluding the impact of which net income grew by 12% to $6.7 billion. We expect the company to report another strong set of quarterly results when it reports on February 1. We have also created an interactive dashboard where you can change the company’s expected revenues and margins to gauge how they affect the company’s earnings.

Visa is in an extremely strong position operationally. It has huge scale, as its credit and debit cards are accepted almost universally. It has a large number of co-branding partners, and its cards in circulation and volume of transactions processed far exceed those of its rivals. The company managed to grow its revenues by growing client incentives 34%. Moreover, the company has been consistently improving its operating margins by keeping expenses in check, complementing the revenue growth. Its strong market position allows Visa a lot of leeway to give up some short-term profits for the consolidation of its market position in the medium to long term.

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We break down Visa’s valuation into four value streams — 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 as well. However, the company can still take steps to expand the number of transactions processed on its network. To that end, its focus is on increasing the presence of its products and services to all possible points of transactions. There is still considerable scope to making online payments more secure while also improving user experience for customers. Master Card’s recent acquisition of Nu Data Security could pose a challenge for Visa on this front.

Our price estimate for Visa is slightly below the current market price.

Please refer to our complete analysis for Visa

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