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How Visa Managed to Reduce Total Operating Expenses

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Sep. 22 2017, Updated 9:37 p.m. ET

Substantial decline

Visa (V) reported total operating expenses of $5.56 billion from fiscal 1Q16 to fiscal 3Q16 and $4.57 billion from fiscal 1Q17 to fiscal 3Q17, representing a substantial fall of 18%. The company incurred a Visa Europe Framework Agreement loss amounting to $1.87 billion in fiscal 3Q16. This loss wasn’t incurred between fiscal 1Q17 and fiscal 3Q17, which resulted in a fall in the company’s total operating expenses.

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Visa managed to report professional fee-related expenses amounting to $276 million from fiscal 1Q16 to fiscal 3Q16 and $265 million from fiscal 1Q17 to fiscal 3Q17, which reflects a decline of 4%. The company incurred professional fee-related expenses in relation to the acquisition of Visa Europe between fiscal 1Q16 and fiscal 3Q16. These expenses weren’t incurred between fiscal 1Q17 and fiscal 3Q17, which resulted in a marginal decline in professional fee–related expenses.

However, from fiscal 1Q16 to fiscal 3Q16, Visa incurred personnel expenses amounting to $1.53 billion. From fiscal 1Q17 to fiscal 3Q17, the company incurred personnel expenses of $1.97 billion, which reflects a substantial increase of 28%. This rise was mainly due to the inclusion of new employees in the company and higher incentive compensation.

Notably, Visa has incurred marketing expenses amounting to $569 million from fiscal 1Q16 to fiscal 3Q16 and $632 million from fiscal 1Q17 to fiscal 3Q17, reflecting a rise of 11%. However, the company incurred network and processing expenses amounting to $377 million from fiscal 1Q16 to fiscal 3Q16 and $453 million from fiscal 1Q17 to fiscal 3Q17, implying an increase of 20%.

Return on invested capital

Over the last 12 months, or on LTM basis, Visa (V) has generated a return of 18.89% on invested capital. Other consumer financial players (XLF) have managed to generate the following returns.

  • Discover Financial Services (DFS): 3.13%
  • American Express (AXP): 2.84%
  • PayPal Holdings (PYPL): 12.76%
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