Revenues at Visa have risen consistently over the years, at a 10-year CAGR of 12.5%. Revenue growth continued in the first nine months of fiscal 2019, with the same being up 11% year over year. The company is likely to have retained its revenue momentum in the fourth quarter on the back of its strong market position and an attractive core business that is steadily driven by new deals, renewed agreements, accretive acquisitions, increasing spending via cards, shift to digital form of payments and expansion of service offerings.
Revenues are likely to have benefited from higher payment volumes, cross-border volumes, and processed transactions.
Service Revenues (34% of total revenues), constituting the support services provided to clients for usage of the company’s products, are aided by payment volumes. The Zacks Consensus Estimate for revenues from this business line suggests a 10.3% increase to $2.56 billion from the year-earlier reported figure on the back of total payments volumes growth of 9% (at constant currency) recorded in the previous quarter.
Data Processing revenues depend on a number of transactions processed. Visa generates these revenues by authorizing, clearing, settling, providing network access and other services for the transactions processed.
International Transaction Revenues (28%) are likely to have benefited from an increase in cross-border transactions, which are expected to climb 11.5% year over year to $2.19 billion, led by higher transactions in Europe, Asia Pacific, Canada, CEMEA and LAC.
However, Visa’s revenues might have been offset to some extent by a spurt in client incentives, rewarded to financial institutions and merchants to increase acceptance of its products and drive payment volumes on its network. This is a contra revenue item and has been on the rise for the last several quarters.
Operating expenses are expected to have increased, induced by higher personnel and marketing costs.
Visa is making significant investments in its business initiatives and strategic priorities, which include investments in its employees and digital products, technological operations plus merchant solutions to position itself for long-term sustainable growth. This might have resulted in elevated expense levels in the to-be-reported quarter and dragged down margins to some extent.
However, the bottom line is expected to have gained from the company’s share buyback in the fiscal third quarter.
VISA LONG (Buy)
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