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Visa Expects Strong Revenue Growth for International Transactions

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Sep. 8 2015, Updated 12:06 p.m. ET

Strong financials

Visa reported net operating revenue of $3.5 billion in 3Q15—a 12% rise on a YoY (year-over-year) basis. It was driven by the performance across all of the revenue line items. Strong global payments volume and pricing actions led to a 9% rise in service revenue to $1.6 billion. Service revenue is primarily generated from payment volumes on Visa-branded cards for purchased goods and services.

Visa’s data processing revenue stood at $1.4 billion—a 6% rise on a YoY basis. It was backed by continued strong growth rates in processed transactions. The company’s data processing revenue includes revenue earned for authorization, network access, clearing, settlement, and other maintenance and support services. Visa will continue to record revenue on Russian transactions because the company owns the issuer-client relationships. However, this revenue will be offset by payments to the national processor “National Payment Card System” of Russia. The revenue will remain similar to previous quarters, but expenses will increase due to payments.

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International transaction growth

Visa’s international transaction segment is registering strong growth. It’s partially impacted by higher currency volatility. International transaction revenue includes cross-border transaction processing and currency conversion activities. The international transaction revenue grew by 21% to $1 billion. Client incentives rose nominally by 5% to $670 million. They accounted for ~16% of the gross revenue. The company had expected higher client incentives in the third quarter. However, the growth of client incentives was low due to lower payment volumes, performance adjustments in specific countries, and the impact of a delay in issuer deal renewals.

Visa achieved net profit margins of 43% in the last fiscal year. Here’s how some of Visa’s peers in the payment processing industry fared with their net margins in the last fiscal year:

  • MasterCard (MA) – 38%
  • American Express (AXP) – 16%
  • Discover Financial (DFS) – 27%

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

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