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Visa Inc. Profits Soar on International Growth

Visa (NYSE: V) 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.

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."

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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.