* Fourth-quarter EPS $1.07 vs est $1.13
* Net revenue $1.99 bln vs est $1.97 bln
* Expenses jump 20 pct
* Shares fall nearly 5 pct
Dec 20 (Reuters) - Credit card company Discover Financial Services' quarterly profit rose 7 percent as more people shopped with their cards, but earnings fell short of analysts' expectations as costs rose.
The company said costs rose 20 percent to $800 million as it hired more, paid more in compensation and increased its marketing spend.
Discover has been expanding its payment services division and signed a deal with PayPal, the online payment service of eBay Inc, in August that raised transaction volumes.
The company said pretax income at the unit fell 21 percent to $33 million but transaction volumes rose 13 percent to $49 billion as it continues to invest in the segment.
Discover is also investing in mobile payments, and has tied up with Google Inc to allow users to link their Discover cards directly to Google Wallet.
Profit rose to $551 million, or $1.07 per share, in the fourth quarter, from $513 million, or 95 cents per share, a year earlier.
Analysts on average had expected earnings of $1.13 per share, excluding items, according to Thomson Reuters I/B/E/S.
Provision for loan losses rose 6 percent to $338 million as its loan portfolio increased 6 percent to $61 billion.
Credit card loans rose 6 percent to $49.6 billion in its fourth quarter ended Nov. 30 on top of a similar rise in card sales volumes.
Discover like American Express Inc lends directly to consumers but its business is a quarter of its rival's size. The two companies compete with Visa Inc and MasterCard Inc to process transactions for banks.
Shares of the Riverwoods, Illinois-based company were down nearly 4 percent at $38.25 in early trading on the New York Stock Exchange on Thursday. The shares have risen about 68 percent since the beginning of the year to Wednesday close.
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