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Visa Grows on Service and International Transactions Revenues

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Service revenues

Visa reported net operating revenue of $3.6 billion in 4Q15, a 13% rise on a YoY (year-over-year) constant dollar basis, or 11% on a nominal basis. It was driven by the performance across all revenue line items. Strong global payments volume and pricing actions led to a 9% rise in service revenue to $1.6 billion compared to $1.5 billion in 4Q14. Service revenue is primarily generated from payment volumes on Visa-branded cards for purchased goods and services.

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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.

International transaction growth

Visa’s international transactions segment is registering strong growth. It’s partially impacted by higher currency volatility. International transactions revenue includes cross-border transaction processing and currency conversion activities. The international transactions revenue grew by 16% to $1.1 billion compared to $938 million in the prior year quarter.

In 2015, Visa’s client incentives stood at 17.1% of gross revenues, below the expectations of 17.5% to 18.5%. The lower client incentives were mainly due to volume shortfalls in Russia and Brazil, delays in renewals, and positive currency movement.

Visa achieved net profit margins of 46% in the last fiscal year ended September 30, 2015. 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%
  • Fidelity National Information Services (FIS) – 11%

Together, these companies form 2.3% of the Technology Select Sector SPDR ETF (XLK).

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