These Factors Could Drive Visa Services and Data Processing Growth
Data processing and services
Visa (V) is witnessing high growth through services and data processing backed by operating business growth. The company is expected to see double-digit growth in fiscal 2Q17 on a year-over-year basis mainly due to higher debit card service fees and higher penetration in US and European markets. It registered growth of 17% in service revenues to $1.9 billion in fiscal 1Q17. The rise was mainly due to the announced service fee increase for US-acquired debit cards, partially offset by the negative currency impact.
Visa has seen lower service revenue yields in Europe for fiscal 1Q17 as compared to its legacy Visa business. The company garners service revenue from payment volumes from branded cards for purchased products and services.
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On the data processing front, Visa has seen lower growth in the recent quarters mainly due to lower yields on European transactions. In fiscal 1Q17, the company’s data-processing revenue stood at $1.9 billion, a 28% rise compared to the prior year. The company’s data processing includes revenue for authorization, settlement, network access, clearing, and other support services. Visa’s net operating revenue stood at $4.5 billion in fiscal 1Q17, a 25.0% rise YoY mainly driven by international transactions and data processing revenue.
Visa generated a net profit margin of 40% in fiscal 2016. Here’s how some of its competitors in the industry performed in terms of net margins in 2016:
- MasterCard (MA): 37.7%
- Fidelity National Information Services (FIS): 6.1%
- American Express (AXP): 16.5%
Together, these companies account for 6.1% of the SPDR Dow Jones Industrial Average ETF (DIA).
Expected rise in incentives
In fiscal 1Q17, Visa’s client incentives stood at 19% of its gross revenue. The number is expected to rise in fiscal 2Q17 and for the full year as the company penetrates further into Asia and the Middle East.
Visa’s international transactions revenue expanded 44% to $1.5 billion on a YoY basis. The growth was mainly due to cross-border volume growth and higher-than-average currency volatility, which were partially offset by an unfavorable exchange rate impact.
In the next part, we’ll study Visa’s leverage and repurchases in 2017.