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Visa Inc. Profits Soar on International Growth

By Joe Tenebruso - Updated Jul 25, 2017 at 12:28PM

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The global payments network is collecting an ever-rising toll as the world moves towards digital payments and away from cash and checks.

Visa (V 0.33%) reported fiscal third-quarter results on July 20. The digital payments giant continues to grow its revenue and earnings at a rapid rate, driven by its robust international expansion. 

Visa results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$4.565 billion

$3.630 billion

26%

Adjusted net income

$2.059 billion

$1.635 billion

26%

Adjusted EPS

$0.86

$0.69

25%

Data source: Visa Q3 2017 earnings press release.

Map of Europe with heart-shaped flags

Visa's recently acquired European business is exceeding even the company's optimistic expectations. Image source: Getty Images.

What happened with Visa this quarter?

Net operating revenue jumped 26% year over year to $4.6 billion, as the integration of Visa Europe continues to progress smoothly.

Service revenue, which is recognized based on payment volume in the prior quarter, rose 19% to $1.9 billion, as payments volume jumped 38% on a constant dollar basis to $1.7 trillion. Visa's torrid growth continued in the third quarter, as payments volume increased 38%, to $1.9 trillion, fueled by a 72% surge in international payments volume.

Data processing revenue grew 29% to $2 billion, as the number of transactions processed on Visa's network swelled 44% to 28.5 billion. Total processed transactions -- adjusted to include Visa Europe in prior-year results -- increased 13%.

International transaction revenue rose 45% to $1.6 billion, as constant currency cross-border volume soared 147% (11% when normalizing for Visa Europe).

Client incentives, which are a contra revenue item, were $1.1 billion. That represented 20.1% of gross revenue, compared to 18.8% in the prior-year period.

Adjusted operating expenses came in 31% higher at $1.5 billion, mainly due to costs associated with the acquisition and integration of Visa Europe.

All told, adjusted net income improved 26% to $2.1 billion, or $0.86 per share.

Capital returns

Visa's highly profitable operations allow it to reward its shareholders with a steadily growing dividend and a substantial stock buyback program. The electronic payments titan repurchased 17.8 million shares of stock at an average price of $93.82 per share in the third quarter, for a total of $1.7 billion. Investors should expect more of the same in the quarters ahead, as Visa still has $5.5 billion remaining in cash available for additional share repurchases.

Looking forward

Visa boosted its financial outlook for fiscal 2017. The company now sees full-year net revenue growth of 20%, up from prior estimates of 16% to 18%, and adjusted EPS growth of 20%, compared to a previous forecast for adjusted EPS growth in the "mid-teens."

"We continue to see strong momentum in the business and we're excited about the long-term growth prospects for Visa," CEO Alfred Kelly said during a conference call with analysts. "There is a significant opportunity to displace cash and check of $17 trillion in front of us. We will continue to focus on partnering strategically and driving digital innovation to substantially grow our business into the future."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool has a disclosure policy.

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