Earnings Review: Visa Posts Another Strong Quarter


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Visa ( V ) reported earnings for the second quarter of fiscal year 2017 on Thursday, April 20. The U.S.-based payments company reported a 23.5% increase in revenue net of client incentives compared to the same quarter in fiscal year 2016. However, increased tax expenditure related largely to the settlement of special items related to the reorganization of Visa Europe meant that net income and earnings per share ( EPS ) declined by almost 75% year over year. Excluding the impact of these one-time special items , net income came in at $ 2.1 billion and EPS at $ 0.86, implying an increase of 27% year over year.

visa fy 17 q2

Visa is in an extremely strong position operationally. It has huge scale: its credit and debit cards are accepted universally and on all types of payment devices; it has a large number of co-branding partners and its cards in circulation and volume of transactions processed far exceed that of any rival company. Moreover, the company consistently posts an operating margin that most public companies can only dream of. This kind of market position allows Visa a lot of leeway to give up short term profits for the consolidation of market position in the medium to long term. In the second quarter, Visa grew its revenue net incentives by 23.5%. The company managed to achieve these numbers by growing client incentives 30.7% and operating expenses 40% year over year. Most of the increase in operating expenses came from increased spending on marketing and promotions, and a large increase in general and administrative expenses.

Going forward, Visa is focusing on the integration of Visa Europe into its overall business. Additionally, it is trying to expand its payment services to newer platforms. This means that it expects its revenue to grow between 16%-18% for the full year, with an operating margin in the mid-60s. In the second quarter, the company's operating margin dropped from 67% in the previous year to around 62.7%, while its revenue grew by 23.5%. Lower revenue growth means that we expect the company to scale back on client incentives, while the higher operating margin guidance means that Visa is likely to spend less on marketing and promotions, as well as that the increase in general and administrative expenses was likely a one-time occurrence.

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks , US Markets , Investing Ideas
Referenced Symbols: V , EPS , MA , DFS , AXP


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