Over the past five years, shares of MasterCard (NYSE:MA) have greatly outpaced those of Visa (NYSE:V). MasterCard, the smaller of two, consistently post strong returns on capital, as well as receives high marks for its corporate culture. Can the company's culture be a long-term value driver over Visa?
In the follow video, Motley Fool co-founder and CEO, Tom Gardner, sits down with Columbia Business School professor and value investing guru, Bruce Greenwald, to discuss the two companies. Greenwald points out Visa's control of its expenses as a major long-term advantage.
A transcript follows the video.
It doesn't have to be a — just one that we'll follow together — I've invested in and recommended MasterCard. I have not invested in or recommended Visa. They're very similar, obviously. They have similar dynamics to the business. Visa has more exposure in debit cards, which can be regulated more successfully and that can hurt Visa … but here's a big distinguishing factor between the companies. Glassdoor — when you look at the size of the sample of the employees that have rated those two companies — it's significant, and MasterCard is vastly superior as a culture to work for …
People like to work for MasterCard, but what is Visa well known for relative to MasterCard? Cost management. They are much more careful about managing costs. There gets to be any kind of adverse development in that industry — do you want the guys who are going to take care of the workers first …
Such a great question, Bruce. That's a really great question, because I would look at Costco versus Wal-Mart and I would say, "Which one do I think has better long-term sustainability — the one that knows how to manage costs internally or the one that gets people excited to come to work?"
Let's stop there.
Have you ever encountered anyone in Costco that's anything but incredibly helpful? And that makes me feel better as a stake-holding customer in that business about going back and shopping there.
Just be really careful about that one, because first of all, we know beyond a shadow of a doubt that in retail, the structural economics of density (which is local, regional dominance) completely wipes out everything else. Does the Wal-Mart culture work where they're not dense? Germany? Korea? Japan? China? Is that a profitable culture in those environments? Don't be ridiculous. Does it even work where Target has the density out on the West Coast? Not particularly well. Where does the profitability come from? The regions they dominate — so it's local economies of scale that matter.
I have a new bet I think we should make — Wal-Mart versus Amazon over the next 10 years. You're basically certain that Wal-Mart will outperform Amazon.
Oh, yeah. I'd do that one. I'd do that one.
Tom Gardner owns shares of MasterCard. The Motley Fool recommends Costco Wholesale, MasterCard, and Visa. The Motley Fool owns shares of Costco Wholesale, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.