Monday, December 31, 2007

Mastercard (MA) to Benefit from VISA IPO Hype

Along with all the great things about Mastercard (MA) as a business [Rebuilding Mastercard] and [Bravo Mastercard], it appears the hype machine for VISA is going to be "Google like". I think if VISA were priced "low" it would have a massive IPO 1st day performance [VISA IPO Priceless], but with a peer now out in the marketplace as a publicly trading entity the pricing of VISA's IPO should be in line with Mastercard valuation, thereby limiting to some degree the level of first day pop. And unlike some commentators, I don't think VISA coming public will hurt Mastercard. You essentially have a duopoly - the only 2 ways to play the increasing plastic based society (cash is trash!), without the credit risk. Further, the more I think about the cash strapped US consumer, and how he/she is turning to plastic to fund gas and groceries (as their discretionary budget evaporates and inflation rips into them), the more I see credit card usage and hence each transactions is just more money for these companies.

Notable Calls blog says Morgan Stanley is seeing these trends:
  • Morgan Stanley is out positive on Mastercard (NYSE:MA) saying data from Visa Inc.’s latest SEC filings indicate that Visa strongly raised prices over its past fiscal year. This gives the firm increased conviction in their pricing power thesis on MA.
  • For the year ended September 30, 2007, Visa Inc. revenue grew 33% year-over-year; fully 11% came from direct price increases to its customers. Another 5% emanated from reducing rebates to its bank and merchant customers, a symbol of pricing power in firm's view. During the same period, MA revenue rose 20% year-over-year, with 3% coming from price increases
  • MSCO believes on average, Visa prices slightly below MA. Price increases from Visa should make it easier for MA to raise its prices, in turn.
  • 2008, they think MA could enjoy flat to up pricing year-over-year, fueled by Visa raising prices (in connection with its planned IPO) and MA’s strong competitive position. Reits Overweight on MA.
Again, pricing power, near monopolies, growing secular market (don't forget most emerging markets have yet to really discover plastic - that is a decade of growth ahead in places that are used to cash based transactions). Not sure what more you could ask for - while the stock is not cheap, it is going to remain one of those "not cheap" growth stocks for a long time. Hopefully somewhere along the line it has a quarter where it stumbles, and investors flee like panicked lemmings, allowing those in the know to load up. I have been slowing accumulating these shares to push Mastercard back up to a 2% type of position. In a year ahead where finding 'guaranteed' earnings growth is going to be harder and harder to find, I expect this name to be one people flock to. If the market weakens, the 50 day moving average is down in the $190s and slowly right by the day. All indications point to a February 08 VISA IPO.

Long Mastercard in fund, no personal position

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