Though banks issue the credit cards, Visa and Mastercard take a cut of every electronic payment transaction when their branded cards are used. That means every time you swipe your card for coffee, lunch, school supplies or shoes, Visa and Mastercard get a percentage.
Given the amount of card swiping that shoppers do every day, both Visa and Mastercard are sitting pretty. But how do you choose between two highly successful stocks? Here’s a look at Visa stock vs. Mastercard stock.
Both Visa stock and Mastercard stock have outperformed the S&P 500 in the past five years, with Mastercard stock rising 275% to Visa’s 218%, compared to the S&P 500’s gain of 90%. All great numbers in a bull market, of course.
Both Visa stock and Mastercard stock pay slight dividends, each currently yield 0.8%. Rather than focusing on dividend yields, the companies instead pour their money into vigorous stock buyback programs.
Visa has re-purchased 5.6 million shares of its stock for $1.5 billion in the last two quarters and has announced a four-for-one stock split. The company has $4.8 billion remaining authorized for stock buybacks in its current repurchase program.
Mastercard spent $3.4 billion on share repurchases last year in its ongoing stock buyback program. Mastercard still has $3.8 billion authorized for additional share buybacks.
Visa stock now trades at about 28 times earnings and 21 times forward earnings for next year, while Mastercard stock is valued at 27 times current earnings and about 20 times forward earnings.
In its most recent earnings announcement, Visa continued to show solid growth in its business, especially with impressive income growth for the quarter.
Visa reported Q1 2015 net income grew 11% from the same quarter last year, up to $1.6 billion. Net operating revenue increased 7% from the year-ago quarter, to $3.4 billion, though a stronger U.S. dollar knocked down the operating revenues by two percentage points.
The number of total processed transactions increased by 10% year-over-year to 17.6 billion. Service revenues and data processing revenues showed strong growth at 9%. International transactions also grew 9%, to $970 million. Total operating expenses increased by 6% in the quarter to $1.1 billion.
Mastercard, meanwhile, reported net income of $801 million, compared to last year’s fourth quarter net income of $623 million. Net revenue was $2.4 billion compared to $2.1 billion in last year’s fourth quarter — a 14% year-over-year increase. Purchase transactions increased 11% to 11.6 billion, with cross-border volumes up by 19%.
Total operating expenses increased, though, by 26% compared to last year’s same quarter. A re-structuring charge in the recent quarter drove up expenses. On a more consistent comparison basis, operating expenses still increased from $1.2 billion in last year’s same quarter to $1.4 billion in this year’s.
While both companies do more than half of their business overseas, investors should watch those headwinds and the currency exchange headwinds, as well as Mastercard’s strategic spending on tweaking its business that will likely affect revenue and earnings.
Visa projects low double-digit percentage revenue growth for its fiscal year 2015, compared to its 7% increase in the latest quarter. This would be a resumption of what has been closer to its historical average growth rates over the past few years.
Mastercard, which grew its revenue by 14% in the quarter, sees high single-digit revenue growth, so this would be a decreased growth rate. However, Mastercard stock has been riding a growth surge in its revenue and income in the past couple years.
Visa’s outlook included a mention of the 2% negative impact currency exchange is likely to have, though this should hit both companies equally. And, as we mentioned, Mastercard has been struggling with some higher cost issues.
Visa’s business is roughly twice the size of Mastercard’s business, which gives it the gargantuan scale to stand up a bit better to the industry headwinds. Visa is currently managing its operating expenses in this environment well. As we mentioned, investors should take note of Mastercards’s slightly higher expenses, which should dampen near-term results.
While their businesses are remarkably similar, Visa stock’s V-net payment processing is in 200 countries, so Visa’s just slightly more accepted internationally, though Mastercard’s presence is also great. Both Visa and Mastercard are ramping up in the expanding mobile payment market where here again, Visa’s economy of scale may push it ahead.
Which One for Investors?
This is a really close call, as both Visa stock and Mastercard stock are sizzling, with their businesses heating up. Mastercard has been enjoying accelerated business growth for the past couple of years, but even though MA won the battle for revenue and earnings growth this quarter, it looks like Visa will now edge ahead.
Long-term investors probably won’t go wrong with either one, but if Visa is able to forge ahead on the growth front this year, investors should wait for a price correction, then buy Visa stock.
As of this writing, Greg Sushinsky did not hold a position in any of the aforementioned securities.