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Growth Trajectory in Visa’s Payments Volume to Continue

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Expense management in 2H17

Visa (V) management expects its payments volume to continue in 2H17. During this period, Visa is planning to increase its expenses on technology and marketing initiatives. The Visa Europe integration costs are also expected to rise in 2H17.

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Rising payments on global growth

Growth in cross-border volumes, payments volume, and processed transactions have helped Visa to finally beat analyst estimates. Growth in payments volume was around 37% on a YoY basis and stood at ~$1.7 trillion. US payment volume stood at $0.77 trillion, and international payment volume stood at $0.95 trillion. This growth on a YoY basis has been driven by the Visa Europe acquisition, which has helped the company expand its global reach.

Growth in payments volume has been strong in the last few quarters, and as a result, Visa is presenting tough competition to its peers. The main reason for this improved performance is the strong performance of global economies. US cross-border volumes have been the major contributor in the company beating analysts’ estimates and for upside surprises. Service revenues, which stood at $2.0 billion in fiscal 2Q17, rose 17% as compared to the corresponding quarter last year.

In a nutshell, the increase in net operating revenues was the result of data processing revenues rising 25% on a YoY basis, international transaction revenues rising 41% on a YoY basis, and other revenues rising 3% on a YoY basis.

In the upcoming quarters, international transactions are expected to increase on the back of the Visa Europe acquisition, which will also result in an increase in operating revenues. Visa’s competitors reported the following net incomes in 1Q17:

  • American Express(AXP): $1.2 billion
  • MasterCard (MA): $1.1 billion
  • Discover Financial Services (DFS): $0.5 billion

Together, these companies form 0.94% of the Vanguard S&P 500 ETF (VOO).

Expansion will improve performance in 2017

The company’s online payment options, which Visa launched in 2014 under the name “Visa Checkout,” saw an excellent response. In fiscal 2Q17, Visa Checkout had 20 million accounts. Though it’s tough to estimate the contribution that Visa Europe could have on Visa’s expected double-digit growth, if growth in payments volume maintains momentum, then the company’s stock price will likely stay stable. In the Asia-Pacific region, Visa continues to expand its position. Visa is expecting annual net revenue growth of 16%–18%.

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