Mastercard, Visa: Q1 Earnings May Be Fine, But Guidance Will Be Weak

by: Sean Miller April 10, 2008 | about stocks: MA / V    

Sean Miller

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Mastercard (MA) and Visa (V) are slated to report earnings April 29th and 28th, respectively. Both are in their quiet periods, and no news beforehand is considered good news. There were no warnings because both will have better than expected first quarter numbers, but what will the future look like? Now that the both Bernanke and Greenspan have finally acknowledged that we are in a recession (it must be true), this has to affect guidance. After all, how long can we use the "shift to essentials" (gas and groceries) arguement?

Shareholders and analysts seem to be in denial...I can't find a negative word anywhere, but the fact is that consumers swipe more in good times when confidence is high. There is the international component, but even the IMF has been trending down their growth expectations. Retail sales have stalled, late payments on credit card debt are increasing rapidly, demand for gasoline is at a 3 year low, and consumers are getting fed up with high fees.

Both Mastercard and Visa trade at lofty P/E levels which are unsustainable if growth rates are tweaked lower. The fact is, the past is not an indication of future stock performance. It's just a matter of time before the momentum players run for the hills.

Disclosure: none

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This article has 62 comments:

  •  
    Apr 10 08:08 AM
    Another Neg review from Alpha...... VIsa has clearly stated that our current economic status does NOT affect visa b/c of its bussiness model. In fact Mastercard has risen to unpredicted level since decemeber, so how does this badd economy really affect these company. And if MC has thrived in this economy whats to say that visa cant...which has a much bigger market shares. In fact due to the different subcompany (visa-asia, visa-canada, etc.) I believe they will probably have a more structured presence in the region and potential for higher growth than mastercard.

    In terms of number of outstanding shares. there are many other companies out there that have way more outstanding shares and are thriving....

    I appreciate the criticism b/c we need to hear the downside as well as the upside to any stocks. I own stock in visa and probably have a vested interest in it.
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  •  
    Apr 10 09:10 AM
    Sean, Hi., I would think that there might be a lag to Mastercard's weak guidance, i.e. maybe mid quarter instead of at the April release. There really is no reason for them to warn now in my opinion. Just wondering why you think they'll give weak guidance now?
    Reply | Link to Comment
  •  
    Apr 10 09:40 AM
    global economic fundamentals have deteriorated significantly in the quarter, as has access to credit due to tightening standards. this will have to be address in the conf call. look at walmart today. they raised earnings guidance but it's not based on revenue, its based on inventory control.
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  •  
    Apr 10 09:54 AM
    sean, great post. analysts don't seem to have their heads straight on this one! be prepared to get a lot of slack from the longs.
    Reply | Link to Comment
  •  
    Apr 10 10:19 AM
    to Adesai: the Visa IPO filing states: "Our business is affected by overall economic conditions and consumer spending patterns."
    Reply | Link to Comment
  •  
    Apr 10 10:47 AM
    not withstanding a "slowdown" there is never a discussion of new card accounts with new users for the services of V and MA. Everything I read (except for the doom and gloom cr**) says lending is increasing here in the US, the EU and I assume the emerging BRIC markets. If 10% of the holders default, stay delinquent, go bankrupt, then 90% don't. Many will continue to use their cards for necessities (food, gas, meds) while repaying as able to ride out the storm(s). Most people have multiple cards (both MA & V) plus debit cards for banking and continue to use for convenience. While retail sales may have slowed, they have not stopped and neither have sales of food or gasoline. If I can't afford to fill up, I can still purchase $10.00 at a time and swipe my card, the effect is the same.
    Reply | Link to Comment
  •  
    Apr 10 11:54 AM
    as the economy slows down, people may stop using MC (credit cards), but not Visa...Visa does check cards, too...and people are not going to stop using their check cards...as a matter of fact, they may use them more because they aren't carrying around as much cash...I know I'm not...Viva Visa!
    Reply | Link to Comment
  •  
    Apr 10 12:24 PM
    Latest retail reports say that in-store sales are down, but internet sales are UP. That's good news for V and MA, because credit cards are THE preferred method of payment for internet purchases.
    Reply | Link to Comment
  •  
    Apr 10 12:52 PM
    Internet sales are only 5% of total sales
    Reply | Link to Comment
  •  
    Apr 10 12:54 PM
    Even if Visa does have a large amount of outstanding shares, their business model is superb, It may take a hit in the near future but not enough to scare me off from buying (V), I think long term a large number of people will be kicking themselves for not taking advantage while they could.
    Reply | Link to Comment
  •  
    Apr 10 01:48 PM
    Sean, I totally agree with you. MA might fare better than V just because of the low P/E. V is really expensive at these levels. I am expecting it to be around 50-55 in mid may. Do you have any numbers??
    Reply | Link to Comment
  •  
    Apr 10 02:11 PM
    I have about $ 5000 that I was considering putting into a term account but think I will have better return by investing in Visa. I’m learning more about investments and VISA sounds good to me. Is this something I can do on my own through E-trade or ING or should I work with a company to get some stock in VISA? Please advise.
    Reply | Link to Comment
  •  
    Apr 10 02:19 PM
    New Investor- YOu can buy Visa at any stock trader, including E-trade, Sharebuilder (ING) or whatever else.

    I tend to like Sharebuilder as it gives you a ton of options, low cost, etc...I would recommend you use Yahoo! finance for research, as its the best free web on the net for finance.

    I consider a strong long term pick for any long term investor. The price may go back down a tad, but for long term, I would just get in. If you're nervous, wait for the earnings to come to see who's right and who's wrong. Either way, the long term trends globally are away from cash and towards plastic, whether that's debit or credit.

    This will only accelerate and the world's #1 player is Visa. As long as this industry keeps increasing revenue and there's no reason to think that long term it won't, both MA and Visa are good busy. I prefer the market leader in Visa.
    Reply | Link to Comment
  •  
    Apr 10 02:41 PM
    Sean MIller,

    I take part of my post back, your right visa did claim "Our business is affected by overall economic conditions and consumer spending patterns." But in reality when economy goes down then spending on credit cards go up. That seems to be the consensus. For instance, Mastercards shares have increased and continue to increase in this badd economy. In terms of # of outstanding shares, I am concerned that Visa may not live up to the hype of Mastercard in terms of the growth of stocks, but even if it does half of what MC has done i will be happy.

    I think the stock will be at least $80.00 by the end of the year and that a conservative estimate. It may hit $100 and thats not too far fetched b/c of Olymipics and the possible growth potential. I read almost every other day that a bank from China, middle east, brazil, etc.. are investing 100's of millions of dollars in this company. Which is likely to stablize the # of outstanding shares.

    I like what one of the analyst said "mastercard is a ferrari" while "visa is a lamborghini". Take your pick b/c they both are good.
    Reply | Link to Comment
  •  
    Apr 10 03:02 PM
    For whats its worth, I appreciate articles like this one that give me fuel to think about vs. all the screaming bulls hyping this thing. I missed the run on MA and regret it because I thought it was a great story, just never had the chance to pick some up. UBS just raised their price target on MA so there is a lot of excitement with these two credit card stocks....reading articles like this one allow me to keep my emotions in check.
    Reply | Link to Comment
  •  
    Apr 10 03:12 PM
    adesai, normally, when the economy worsens, consumers might put more on credit cards, but the volatility in the credit markets and tightening standards is making this more difficult
    Reply | Link to Comment
  •  
    Apr 10 03:19 PM
    You sound like Joanne Rosen's brother- a couple of dim bulbs.

    I am SOOOOOOOOO happy there are mentally challenged folks out there downing Visa- keep up the good work-

    At first I must say that I was upset at the ignorance of the posts- but as one poster responded: "why be upset they will just help drive the price of V down for you"...

    Visa will be 100$ by the end of the year- once the EU litigation is over Visa Europe will be folded back in- and for those of you who think the world is falling apart- you must be wathching too much television. I have been to 25 developing countries since the turn of the decade- and can tell you that those formerly '3rd world' countries are doing better that we are!

    So much of the world is just now being exposed to credit cares (E-Europe/India/Russia... America) that even if we have a global recession with a 20 % downturn- V's growth will be 10% annually-

    As far as MC- it is a joke compared to V- MC had its run-

    But by all means- listen to people that are not in the business and have no skills - you will make me money!

    (I work on Wall St (110 Wall)- and have been in the biz for 22 years- most of the people posting these articles do not even know how to read a prospectus- take a look at Joanne Rosen't article- and she didn't even know that V was global except for Europe- nor did she know that underwriters of an ipo do not lend out shares to short for 30 days after the event)-
    Reply | Link to Comment
  •  
    Apr 10 03:50 PM
    buyv, no speculation required. facts are facts, either i am right or you are; the world will know on apr 28-29 when earnings are released
    Reply | Link to Comment
  •  
    Apr 10 03:56 PM
    Fine Sean- facts are facts- and in 18days its showdown at the OK corral- don't forget your revolver ..........
    Reply | Link to Comment
  •  
    Apr 10 04:04 PM
    touche
    Reply | Link to Comment
  •  
    Apr 10 04:06 PM
    Don't get sucked in Sean, this guy is spamming every article on V.
    Reply | Link to Comment
  •  
    Apr 10 06:33 PM
    You Guys Know Nothing Nothing !!! The Day That I lisen To Any You Guys . Is The Day I Get Out Of The Market !!!
    Reply | Link to Comment
  •  
    Apr 10 06:35 PM
    MA IPOed at $39.00 and now trades for over $200. What is stopping V, which is superior to MA in everyway, from having the same success? There are very, very few "no-brainers"... out there. IMO, V is one of them.
    Reply | Link to Comment
  •  
    Apr 10 06:59 PM
    Life Goes On People, In Good And Bad Times .Its Called Life And Everyone Needs Gas & Food. With All The Crime In The World Today Who In There Right Mind Would Walk Around With a Large Amount Of Cash On Them ?When All You Have To Do Is Use Your Visa Card. And Iam Sick Of These Paid Bashers On The Boards .And If You Think They Don't Exsist ? Just Google "Confessions Of A Paid Basher" And It Will Teach you Something. Not To Pay Any Attion To Them . These Are Things They Don't Want You To Know .
    Long & Strong
    Visa King Of Cards Worldwide # 1
    Reply | Link to Comment
  •  
    Apr 10 07:01 PM
    Right On Jake :-)
    Reply | Link to Comment
  •  
    Apr 10 07:32 PM
    Mr. Miller,
    Without your bio it is impossible to evaluate your opinion about this industry or this stock. I recommend you visit creditcards.com to get a better handle on the magnitude of this market, its users and debt loads. I read that Moody's reported an increase in cc debt during the first quarter since some individuals may no longer access their HELOCs or be able to refi the piggy bank. Please share your sources of information supporting your opinion.
    Reply | Link to Comment
  •  
    Apr 10 07:35 PM
    Sean Miller,

    As one of the posters claimed:

    "MA IPOed at $39.00 and now trades for over $200. What is stopping V, which is superior to MA in everyway, from having the same success?"

    That is a good question, if you can answer that question please.

    Please dont say the market cap b/c even if Visa is at $55bill and MC is at 30bill... visa is 3-4X bigger and should have a market cap 3-4 times bigger.
    Reply | Link to Comment
  •  
    Apr 10 11:25 PM
    Wez- are you unemployed- or are you another 20 something- that can't afford to buy the stock so you have to slam it-

    Seeking Alpha- is a joke- and needs to be exposed for what it is- apparently Sean/Joanne/Wez- are all working together trying to beat up this stock - so that whomever they are working for (as I'm sure with their combined IQs of about 78 can't afford to buy the stock themselves) can buy it cheap! Do not listen to the negativity-
    I am putting my money where my mouth is- I bought 3,250 shares at an average price under $60. I will buy another 1,750 on the next big dip (which I never said would not happen)- but I am an investor- and have a vested interest in correcting children/ignorant people/and fraudulent activity)

    Wez- Joanne - Sean- If you are so down on Visa- why do you care-you obviously have no interest (and most likely can't afford it)- in investing in Visa. Is your cummulative effort just to make repeatedly negative comments?

    For those of you that are thinking that you may actually be getting real advice- I work on Wall Street- I own a business- the people writing these articles are not even in the business- and if they are , they pick up Starbucks for people like me :)

    Listen - Visa is the best stock since Google- by far,and will blow the doors off Mastercrap- bigger market share, global penetration potential, name brand recognition..

    On the 28th of April - V will announce earnings and expect to see this stock take off like a nitro-fueled rocket-

    $75. within 3 weeks
    $100. by the end of the year
    $250. by the end of next year
    $500. (or split equiv. within 3 years)
    Reply | Link to Comment
  •  
    Apr 10 11:30 PM
    MORE EDUCATION;

    For those of you that are new to these sites- people that write these articles (and similar slams on msnmoney/google fin/yahoo fin) get PAID (not a lot - think gas station money- but for slackers it buys video games) to sit in their Apple- to slam the stock (as even though most of them are retarded even they are not stupid enough to think V is going to lose money)-to run it down so they can make a buck off you. Its the oldest trick in the book- and hopefully those of you reading these posts you will do your homework-

    You will see that this is a superior company with tremendous upside potential- You have two choices:

    1. Buy it now at 66.
    2. Wish you bought it at 66 at 75 at the end of the month.
    Reply | Link to Comment
  •  
    Apr 11 10:02 AM
    Sean Miller & Joanne Rosen, please don't quit your day jobs. People are using their visa check cards and MasterCard cash cards (debit cards) to buy stuff like gas and groceries. Credit use maybe down, but the debit cards use is growing.
    Reply | Link to Comment
  •  
    Apr 11 01:38 PM
    The hits keep coming - Another BUY rating- target price $77

    Visa
    Briefing.com - April 11, 2008 9:33 AM ET


    Related Quotes
    Symbol Last Chg
    V Trade 66.24 +0.13
    Real time quote.

    Stifel Nicolaus initiates Buy. Target $77. Stifel initiates V with a Buy and a $77 tgt based on their positive sector views and Visa's position as the global leader in electronic payments. With its dominant market share and strong product set, they expect Visa to continue to benefit from the ongoing worldwide shift from cash to plastic spending. More importantly, they believe Visa, like MasterCard, has significant pricing power supported by a wide array of payment products and services that are increasingly valuable to its customers (issuers, acquirers and ultimately merchants and consumers)

    (Source : Briefing.com )

    Visa is holding its own today- I traded in and out of this stock all week long- and am keeping a core position- In a market like this

    THANK GOD FOR VISA- ITS WHERE I WANT TO BE :)
    Reply | Link to Comment
  •  
    Apr 11 03:48 PM
    Sean,

    Joanne never did answer a question I had regarding the "recession". Her article, similar to your article, has the recession, tightening credit, delinquencies, weak economy as the reason why this stock is not a good buy.

    Here's my question to you.

    1. How long do you think this recession will last? (joanne thinks forever)
    2. What happens to Visa stock once the recession is done and we are in a bull market?
    3. What would you say is the low stock price or, in your opinion, the right valuation of this stock?

    I agree with you on one thing, in a prolonged recession environment, Visa and MC earnings will decrease but they are still better positioned then stocks like Google, Apple in a long recession. If the recession and weak economy last a short time, there will be very little negative impact or none, especially since people tend to survive on credit cards when times are tough. Also, not everyone is affected by the weak economy and not everyone is defaulting on a mortgage or credit card. In fact the majority are NOT.

    I think you are going to lose the April 28th earnings release and I would have to side with buyv.

    Lastly, it would help greatly if Visa bought back some shares but I know they won't. They are going to buy back Visa Europe shares but that doesn't count. The high number of shares has dampened the price run that MA has seen. This is causing the PE ratio to be high, thus creating a very high valuation. If they only released 200-300 million we would see the same type of run as MA. However, I still fully expect a decent run because of the strong earnings, strong future growth and the short term shield from the recession.
    Reply | Link to Comment
  •  
    Apr 11 07:20 PM
    What does it say about V that in a market that decimated the biggest and the best- that V remained unchanged..........
    Reply | Link to Comment
  •  
    Apr 11 08:13 PM
    Hey BuyV,

    I agree with your post but i had a question for you. Why is it that different website (google, yahoo, NYSE, AOL) quote different market cap.

    I know that there are 800+million outstanding shares but only 400+ million shares are float. Can you explain what matters the float or the outstanding shares which will determine the P/E. I also know about the different class of stocks visa has: Class A,B,C. I also know that Visa is planning on buying back shares.....how many shares will they buy b