Wednesday, July 30, 2008

Visa (V) Rings Up Very Good Earnings - Should Bode Well for Mastercard (MA)

We don't own Visa (V), but we do have Mastercard (MA) which reports tomorrow. I'll repeat every quarter people do not realize the international opportunities these 2 companies have. Visa was very solid tonight
  • Visa Inc.'s profit rose a better-than-expected 41 percent in the most recent quarter, as more money changed hands using its credit and debit cards -- particularly outside the United States.
  • Visa it earned $422 million, or 51 cents a share, for the April-to-June period. That is up from $299 million in the same period a year ago, before the company went public.
  • The results, reported Wednesday after the market closed, included litigation and restructuring costs. Excluding those costs and other items, earnings per share amounted to 59 cents. Analysts had anticipated 48 cents per share, according to Thomson Financial.
  • Operating revenue rose to $1.61 billion, above the average analyst forecast, from $1.37 billion a year ago. The driver was a 19 percent jump in payments volume, or the amount of money spent using a Visa-branded product, to $652 billion.
  • Visa's payments volume -- one of the company's key performance measures, along with transactions -- rose 19% to $652 billion in the quarter. Total volume rose 22% from a year earlier to $1 trillion.
  • The number of total payment transactions on Visa cards rose 15% to 10.7 billion.
  • The company now has 1.6 billion cards carrying the Visa brand, it says.
  • The April-to-June quarter, Visa's first full quarter as a public company, saw defaults and delinquencies surge in a growing swath of consumer debt. But Visa, like MasterCard, processes card payments for banks and other institutions, and takes a cut from the purchases made on the cards. The banks are the ones that lend the money to cardholders, and take the losses when they default. (important to note this economically, not important for Visa or Mastercard specifically)
  • "Despite a challenging economic environment in the United States and a softening in traditional credit card spending, the strength of Visa's debit business drove solid growth in the region," Visa's CEO Joe Saunders said in a statement.
  • He pointed to strong expansion in the Asia Pacific region, Latin America, Canada, Central and Eastern Europe and the Middle East.
  • The United States accounts for about 63 percent of Visa's total payments volume. U.S. payments volume rose nearly 12 percent to $388 billion, while payments volume outside the United States rose more than 31 percent to $264 billion.
  • "Greater use of cards leads to increased transaction fees, and zero extended credit shields Visa from any default risk," wrote Celent analyst Red Gillen in a note. "Whether consumers pay off their credit cards or not, Visa's skyrocketing growth is not affected." (Bingo was his Name-O)
  • Some analysts have noted that banks' decision to pare back credit lines to consumers could lead to lower spending volumes for card processors like Visa. (always a risk)
  • It raised its outlook for adjusted operating margins for 2008 to the mid-40 percent range, up from the low-40 percent range. And Chief Financial Officer Byron Pollitt said during the analyst conference call that the company is considering a share repurchase program as early as 2009.
I'm not sure why people are paying nearly 25% more in valuation for Visa over Mastercard, but we've had Mastercard and we'll continue to keep it, although the businesses are of course very similar. Similar growth, for cheaper valuation, always is something I like. I was hoping for some kind of miss from Mastercard so we could cheap up shares cheaper but it appears this won't be happening.

Long Mastercard in fund; no personal position

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