The Dow Jones Industrials (DJINDICES:^DJI) soared 132 points by 12:30 p.m. EDT, as all but a handful of blue-chip stocks gained on good news from the retail sales front. With the measure of spending activity climbing by the largest amount in a year and a half, the news was definitely positive for Visa (NYSE:V), which led all 30 Dow components with a 2.4% rise. Yet rival MasterCard (NYSE:MA) gained an even more impressive 4%, and investors are uncertain over how the companies' battle will play out over the long run.
This morning's jump in Visa and MasterCard came from positive comments from analysts, with MasterCard getting an upgrade while Visa was given an initial rating of outperform. Despite fears about the impact of the weather on spending activity during the first quarter, the combination of this morning's retail sales figures and other data on card spending specifically support the idea that earnings for the two card giants for this period won't be as sluggish as many shareholders had worried. Yet the question many investors still have is whether Visa can keep ahead of MasterCard, given MasterCard's bigger push on the international front recently.
Both Visa and MasterCard face plenty of common challenges. One of the biggest comes from the retail industry, where several big-box companies chose to back out of the $6 billion settlement that MasterCard and Visa agreed to with most of the retail community. Visa is already facing one big-box retail lawsuit in the aftermath of the settlement, and MasterCard will likely also eventually find itself named as a defendant in litigation. With the companies having roughly the same business model and engaging in many similar practices, they are likely to face corresponding legal arguments in any lawsuits.
Between the two, though, MasterCard has a reputation for having a higher-risk, higher-reward profile. Its valuation is higher, reflecting the greater potential for growth compared to Visa. MasterCard has also arguably worked harder to bolster its reputation worldwide, leaving Visa with at least slightly more exposure to the U.S. market.
At the moment, Visa's domestic focus appears to be the winning strategy. Across the globe, international economies are struggling, with China's growth slowing and policymakers in Europe and Japan considering draconian measures to stimulate economic growth. Meanwhile, in the U.S., the Federal Reserve has been able to pull back on its stimulus measures, with figures such as today's retail sales data showing just how strongly the domestic economy is behaving right now.
The key to the future for the top payment processors is whether Visa follows MasterCard's lead to emphasize international markets more strongly. Visa certainly isn't abandoning the global field, with moves to boost cross-border volume and enhance brand-awareness worldwide. If those forays prove adequate, Visa might well hold on to its advantage without further effort. In all likelihood, though, it'll take a more active response from Visa to ensure that MasterCard doesn't take over its No. 1 spot in the long run.