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How Visa Manages High Operating Margins in a Competitive Business


May. 23 2016, Updated 10:07 a.m. ET

High operating margin

Visa (V) has maintained its operating margin above 60% over the past few years. The company’s major expenses include personnel, marketing, network and processing, and professional fees.

Personnel costs rose by 9% in fiscal 2Q16 compared to the prior year. This was mainly due to higher employee incentives, which resulted from improved performance. The company’s marketing and network and processing expenses fell by 2% on a year-over-year basis. Its operating margin was a healthy 67% during the quarter.

Visa saw its revenue rise by 6% and its operating income rise by 7% in fiscal 2Q16 compared to fiscal 2Q15. The company’s operating expenses rose by 6% during the same period, mainly due to higher personnel, network, general, and administrative costs.

Visa achieved total revenue of $13.9 billion in the last fiscal year. Here’s how some of Visa’s peers in the payment-processing industry fared in terms of revenue:

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

Together, these companies account for 2.3% of the SPDR Dow Jones Industrial Average ETF (DIA).

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Outlook for fiscal 2016

Visa expects its revenue to achieve high-single-digit or low-double-digit growth in fiscal 2016 with a 3% negative impact from foreign currency. The company is forecasting client incentives in the range of 17.5%–18.5% in order to compete against other major players in the industry.

The company’s EPS (earnings per share) growth for fiscal 2016 is expected to be in the low end of the mid-teens. The negative impact from foreign currency is expected to be 4%. For the year, the company expects free cash flow of $7 billion.


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