Credit card champions Visa (NYSE: V) and MasterCard (NYSE: MA) have been going head-to-head for as long as anyone who's had plastic in his or her wallet can remember. It's a bitter rivalry, because these two companies are about as identical as it gets. Other industries where two competitors share a huge chunk of market share -- like General Motors (NYSE: GM) and Ford (NYSE: F) -- at least come out with different products. But Visa and MasterCard? For consumers, there's almost no distinguishing between the two.
I smell a fight brewin'.
To push this throwdown into prime time, both Visa and MasterCard have one thing in common that's few and far between these days: they're both great stocks with fantastic future prospects. Why? Because both are riding a global economy switching to a cashless economy. Unlike Capital One (NYSE: COF) American Express (NYSE: AXP) or Discover Financial (NYSE: DFS), Visa and MasterCard are essentially technology companies, without taking any credit risks from consumers. It's about as unfinancial as a financial company gets.
But back to the growth part of this throwdown. That's all anyone's really concerned about with these companies ... it's all about the growth. Net income has been all over the map for both these two over the past year, mainly because of one-time charges. How about top-line business? Both Visa and MasterCard enjoyed roughly 15% increases in transactions processed last quarter, but that might not tell investors the full story.
Here's how things looked for full-year 2007:
|
Metric
|
Visa
|
MasterCard
|
|
Total Cards in Circulation
|
1.61 billion
|
914 million
|
|
Total Card Growth
|
16.4%
|
12.4%
|
|
Total Volume Growth
|
18.4%
|
18.5%
|
|
International Volume Growth
|
28.4%
|
25.5%
|
|
Domestic Payment Volume Growth
|
10.7%
|
10.8%
|
Sheesh. Pretty bland here ... it's about as tied as it get can. It's nearly impossible to tell the two apart! Where to now? To crown a winner, we're going to have to dive into some valuation metrics. Let's take a look at some numbers from the most recent quarter:
|
Metric
|
Visa
|
MasterCard
|
|
Revenue Growth
|
18.1%
|
25%
|
|
Net Income Growth
|
41.1%
|
47.8%*
|
|
Expected Growth Rate
|
22.3%
|
21.7%
|
|
Forward P/E Ratio
|
24
|
19
|
*Before one-time charge.
Ah, now we have at least a sliver of differentiation between these two. Over the next several years, both companies are expected to grow at roughly the same rate, yet Visa is a bit pricier than MasterCard. How can this be? I can think of a few reasons. For one, the party from Visa's recent IPO has probably yet to settle down. The new kid on the block is bound to get more attention from investors than an old hag like MasterCard, which had its heyday a couple of years ago.
In addition, Visa investors might be pricing in a premium for a share buyback program expected to commence in the coming months. Visa has a hoard of cash, so while this is legitimate excitement, let's keep things in perspective: As a percentage of market caps, Visa and MasterCard have very similar amounts of cash on hand. And Visa shares are hardly a bargain -- buying back shares trading for 24-times forward earnings isn't a surefire path to success.
Time to crown a winner
As I've written in the past, both these companies are about as top-notch as you can get. Both will likely outperform the market going forward, and both are about as immune to a global economic downturn as you can hope for. Yet from a valuation standpoint -- more importantly, from a "not following the herd" standpoint -- MasterCard seems to be the more sensible choice.
The throwdown is about as close as it gets for these two, but MasterCard takes the belt this time.
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