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Expense Management: Visa Maintained Its Strong Margins in 3Q15



Higher operating margins

Visa (V) saw its revenue and operating income expand by 12% in 3Q15—compared to the same quarter last year. The company’s operating expenses also rose by 11% during the same period. Its major expenses include personnel, marketing, network and processing, and professional fees. Personnel costs rose by 22% in 3Q15—compared to the year before. This was mainly due to above normal employee incentives. It was due to a better-than-expected performance. Other major expenses either fell or were flat on a YoY (year-over-year) basis. The company’s operating margin was healthy at 64% during the quarter ending in June.

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Outlook for upcoming quarters

Visa expects its revenue to achieve double-digit growth in the fourth quarter despite the unfavourable foreign exchange. The company is also forecasting higher client incentives in order to compete against other major players in the industry. However, the expense growth rate is expected to moderate in the upcoming quarters. The growth for the full year is expected to be in the mid-single digit range.

In fiscal 2016, Visa could benefit from the expected moderation in currency volatility from the current record levels. The company also expects a rise in the contribution of cross-border transactions. However, the company tends to perform well in the midst of an uncertain global economic environment. Visa could also be impacted by lower gas and other commodity prices. This could lead to a lower volume in US dollar terms.

Visa achieved total revenue of $12.7 billion in the last fiscal year. Here’s how some of Visa’s peers in the payment processing industry fared with their revenue in the last fiscal year:

  • MasterCard (MA) – $9.5 billion
  • American Express (AXP) – $35.9 billion
  • Discover Financial (DFS) – $7.6 billion

Together, these companies account for 2.25% of the Technology Select Sector SPDR Fund (XLK).


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