Visa Inc. (
) and MasterCard Inc. (
) are two behemoths in the payments processing world, far larger
than American Express (
) and Discover. It is important to understand that Visa and
MasterCard do not issue the physical credit cards, as that is the
Banks like JP Morgan Chase & Co. (
), Bank of America (
), or Wells Fargo (
) are the ones that physically issue the credit cards and allow the
client to choose between Visa, or MasterCard, and sometimes also
between American Express, and Discover. Both companies, V and MA,
operate very similarly and the differences between the credit cards
are indeed very small.
Both cards are very widely accepted in the vast majority of any
country. Most of the time, interest rates, and rewards, annual
fees, and other charges are dealt with through the bank that issued
the credit card, not MA or V.
MA and V make their money when a retailer uses them as a payment
method. In other words, they charge the retailer, or restaurant, or
travel agency, or really any business. So, in the grand scheme of
things, when the economy in the US is faring well due to more
consumers spending, it translates to more transactions, which
ultimately means one thing, more money for electronic payment
MasterCard markets itself quite well, using their subtle slogan,
"There are some things money can't buy. For everything else,
there's MasterCard." On the other hand, Visa has also ensured that
it has its own succinct slogan, "It's everywhere you want to be."
But, pushing the marketing aside, which one is the more successful
company, not just in terms of earnings or financials, but also in
regards to popularity, global reach, benefits, rewards and
security? We will be examining both electronic payments giants in
hopes of coming to a conclusion not only of which company is better
off in the long run, but also which company's stock is a better
MasterCard Inc. (MA), as most of us know, is a technology company
in the global payments industry. The company is a network that
connects financial institutions, businesses, retailers, merchants,
governments, and consumers, by allowing them to use electronic
forms of payments instead of physical checks and cash.
The financial transactions services giant is mainly known for its
MasterCard brand, but few have heard of its Maestro and Cirrus
services as well. The company also provides loyalty and reward
programs and benefits, as well as information services and
consulting. MA acquired Pinpoint Pty Ltd., a Sydney-based of
loyalty and reward programs.
MA has had so many great years, and there is no doubt that MA has
been an excellent holding for any investor, but is MA set to grow
for the rest of this year, as well as for the future? We have to
bear in mind that MA decided to split its stock for a ratio of 10:1
on January 22
2014. Thus far, unfortunately for stockholders, the stock price has
never hit $82/share again, but that is not to say that MA has
fallen off, or has weakened.
Still, it is also noteworthy to mention that China's economic
growth has slowed down this year. The retail sector for the
previous quarter in the US has also taken the brunt of the damage.
The benefits of having a MA-branded credit card are many. MA offers
even additional benefits to customers who have World or World Elite
MasterCard-branded credit cards. Benefits may include complimentary
breakfast, room upgrades, late checkouts, and internet service from
MA's World Elite Hotels and Resorts Portfolio. MA also allows its
valued clients to use its Priceless Cities program, which offers
cardholders access to sports, entertainment, shopping, and culinary
events at specific cities around the globe.
Perhaps most importantly though, MA holders have to understand that
the bulk, or vast majority of their benefits depend on which bank
their credit card is issued from. For instance, the Barclay's
Barclaycard Arrival Plus World Elite MasterCard offers 2.2% rewards
on every dollar spent when you claim rewards for travel (2 miles
earned/$1, and 10% of those traveled miles are credited back to
account holder when he or she redeems rewards).
Another plus, is there's no foreign transaction charge, and despite
the fact that there is a $89 annuity charge, MA gives cardholders
the opportunity to earn 40,000 bonus miles when he or she spend
$3000+ on purchases in the first 90 days, or first 3 months from
the day the account was opened.
It would not be fair to forget the advantage of trip cancellation
insurance, extended warranty, and travel concierge services.
Another example would be Citi Simplicity, offered through
Citigroup's Citibank, Citi Simplicity MasterCard offers one of the
lowest APR offers. There is no annual fee, and also 18 months
without any interest, and a low 3% balance transfer fee, and as if
that is not enough, there are no penalty APR or late fee.
This makes this card outstanding for those with credit card debts,
or those who are looking into a big purchase that they would like
to pay for over a long period of time.
MA's financials have not been poor either. The company has a
dividend yield of $0.44/share, and as of last quarter (ended 6/30),
MA has made $2,377 million in sales, and a gross profit of $2,377
million, and a positive net income of +$931 million. MA retains a
diluted net EPS of $0.80/share.
MA also has a forward P/E ratio of 25.47, and for last quarter, MA
positively surprised the Zacks Consensus Estimate EPS of
$0.77/share by +3.90%, or 3 cents ($0.80/share). A lot of analysts
have downgraded their estimates for the current quarter's (9/2014)
EPS estimates, from $0.81/share to $0.78/share as of 90 days ago.
As of now, MA has an Earnings ESP of 0.00%.
Visa Inc. (V) is a global payments technology company that also
serves as a network platform for consumers, financial institutions,
businesses, governments, and retailers. The network is so large, it
is estimated about 200 nations use V for electronic payments, and
they are essentially, part of V's ever-growing network.
Many people have not heard of V's processing network, VisaNet.
VisaNet makes authorization, clearing, and settlement of payment
transactions worldwide easier for the company. In addition, it also
provides security and protection from fraud for account holders,
and assured payment for merchants.
V also operates and manages an open-loop payments network in which
Visa connects and manages the exchange of information and values
between; issuers, which includes financial institution that issue
Visa-branded cards or payment products to account holders, and
acquirers, which includes financial institutions that contract with
merchants to accept Visa-branded cards or payment products.
V offers a lot of significant benefits. Visa has standard cards,
which do still come with benefits; however the significant benefits
are paired with V's Visa Signature line features enhanced security
and confidentiality, as well as travel insurance policies. One of
the perks of being a Visa cardholder is access to V's Signature
Luxury Hotel Collection, complimentary room upgrades, internet
service, breakfast and late checking out. This is in many ways,
very similar, if not identical to MA's perks.
Visa is also well known for its rewards programs. Visa's signature
cards offer nice perks to cardholders on top of one's bank reward
programs. The Capital One Venture Rewards Credit Card has an
attractive 2% flat rewards rate on all purchases, as well as a
one-time bonus of 40,000 miles when you first sign up for the card,
provided that one spends $3000+ on purchases within the first 90
days. It wouldn't be fair not to mention the fact that there are no
blackout dates, limits, or expiration dates on miles.
The Chase Freedom card is much more widely used than the Capital
One Venture, and it has no annual fee. Chase Freedom is not a Visa
Signature, but has a really good signup bonus of about $200 cash
back, and gives almost 5% cash back on categories that are
determined every 3 months. Categories can widely vary, from
groceries, hotels, restaurants, to gas.
In addition to that, cardholders earn 1% back on everything, and
get access to the Chase Ultimate Rewards Mall, which is a major
boon, as it gives bonuses on online shopping at stores, from
Express, to Starbucks.com, to Ralph Lauren.
V's financials have not been too poor either. The company has a
dividend yield of $1.60/share, and as of last quarter (ended 6/30),
V has made $3,155 million in sales, and a gross profit of $3,155
million, and a positive net income of +$1,360 million. V retains a
diluted net EPS of $1.51/share. V also has a forward P/E ratio of
24.09, slightly better than MA's forward P/E ratio.
For last quarter, V positively surprised the Zacks Consensus
Estimate EPS of $2.09/share by +3.83%, or 8 cents (posting
$2.17/share). A lot of analysts have downgraded their estimates for
the current quarter's (9/2014) EPS estimates though, moving the
consensus from $2.20/share to $2.10/share as of 90 days ago. As of
now, V has an Earnings ESP positive surprise of +7.14%.
Challenges that MA faces, are not just limited or exclusive to MA.
For example, the threat of hackers cyber attacking a retailers'
data, and hunting their purchases and card information is something
that MA has to bear in mind, and seek to mitigate the risk by
improving and protecting its clients' security and confidential
information on their cards.
The attack on Target (
) earlier this year proved that consumers' trust with credit cards
may be at risk. The fact that that does not directly affect MA is
valid, however, it does impact the social sentiment on blogs and
websites such as StockTwits, which may in turn, hit traders and
investors banking on MA. The same concept applies to V as well.
MA Stock vs. V Stock
To date, Visa has issued approximately a billion cards. It is
almost twice in size as compared to MA. With a market
capitalization of about $166.47 billion, V is far larger than MA's
$89.32 billion market capitalization. Although over the past 5
years, MA's stock has consistently beaten and outperformed the
S&P 500 by a wide margin, underestimating V's potential is not
in anyone's favor.
V is lagging and trailing behind MA, but the potential to grow is
there, especially with an expanding mobile payments market. V has
done well, but not as good as MA, until this year. MA was not able
to reach $82/share this year, which was the price adjusted to
pre-stock split (10:
Visa is the largest credit card company by reach and market cap. V
handles about 60 billion transactions per year in excess of 200
countries; however, is that necessarily a good thing? It is when
the world economy is stable and growing, as consumers are spending
more, however, when there is a huge global sprawl, it also leaves
Visa more exposed to fluctuations in different global currencies,
which could hurt V's revenues and profit, and that is not to forget
if the global economy is in a slump.
MasterCard's stock is arguably more attractive than Visa's stock if
we are talking long-term, based on a few recent events. Many are
bullish on MasterCard due to its equity buyback program which takes
place normally during Q4 or January. MasterCard has also upped its
dividend before the stock split, showing that the company is
committed to shareholders. On the other hand, Visa maintains a
larger stock buyback program, about $5 billion according to CNBC.
Another important aspect is acceptance. Visa and MasterCard are
both very well accepted by almost anyone, and there are very few
rare cases in which a retailer or a business will accept one but
not the other. However, Visa does have the slightly better
acceptance rates. Visa maintains a network of more than 28 million
merchants, and 2 million ATMs, and despite the fact that MasterCard
maintains more than 30 million merchants; Visa is more widely used
and accepted internationally.
For the vast majority of investors, MA and V both seem to be
excellent for long term investing. It is likely that investors will
be happy with the profits regardless of which stock they choose to
invest in. both stocks currently maintain a Zacks Rank #3 (Hold).
Both companies have a great forward P/E ratio compared to the
industry's average of -95.20. Both companies are very similar and
almost mimic each other in terms of movement related to the market.
If the economy improves, both of them benefit, and vice versa if
the economy falls. Investors should keep an eye out for
acquisitions/mergers, or electronic payments deals with companies
like Samsung, Apple (
), Amazon (
), that may give one stock an edge over the other.
After the stock split, Visa seems to be very slightly better to
invest in for the short term, as it has recently witnessed a major
pullback after the earnings report during last quarter's conference
call, which it still has not fully recovered from. All in all, both
stocks are excellent for long-term investors.
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VISA INC-A (V): Free Stock Analysis Report
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AMER EXPRESS CO (AXP): Free Stock Analysis
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