I never really bothered to notice if I use a Visa Inc (NYSE:V) or Mastercard Inc (NYSE:MA) while buying something with my credit card. It has never made any difference to me, as I had to pay for what I purchased. But it does make a difference to these two big payments technology companies. After all, as more people use their cards, the companies receive more revenue.
Visa posted Q1 2013 results, beating analyst estimates slightly on revenues and more on earnings. For the quarter, revenue was up 12% year over year to $2.85 billion, while GAAP EPS came in at $1.93, 26% higher than $1.53 a year ago. This includes a one time tax benefit of $0.11. Net income also surged 26% to $1.29 billion YoY.
Visa makes money by processing card transactions. During the quarter, transactions processed over its network increased 4% to 14.2 billion. Its credit and debit card transactions were up 21% in the overseas market, while there was a decline of 4% in debit transactions in the U.S. With the introduction of new products such as V.me, an electronic wallet, the company is increasing its presence in the payments processing business. At the end of 2012, the electronic wallet was being used at 31 merchant sites, and presently the number stands at over 150.
Going forward, Visa has raised its free cash flow guidance to $6 billion. Moreover, it has authorized $1.75 billion in share repurchases. Including previous buyback authorization in Oct. 2012, Visa now has $2.9 billion available for share repurchase. With that much cash in hand, we can expect some major acquisitions or even an increase in dividends by the company.
A similar card game
MasterCard also posted Q4 results with revenue of $1.9 billion, in line with the consensus estimates. Earnings came in at $4.86 per share, up 21% YoY. MasterCard has been consistently performing well, which is clearly evident looking at its growth over the last two years. The stock price has doubled in two years, and more recently it has announced it will double its quarterly dividend from $0.30 to $0.60. It has also approved a $2 billion buyback program.
MasterCard has entered into a strategic partnership with Mu Sigma, an analytics firm. These companies plan to deliver new analytic products that will help their clients gain more customers and increase customer loyalty. Going by the size of the Big Data analytics market, which is around $5 billion, there is ample room to grow.
The one thing to worry about is MasterCard’s exposure in Europe. If the conditions in Europe don’t improve, we will see growing pressure on earnings. But, if things go right there, then MasterCard can benefit immensely from its European footprint. Meanwhile, the payments processing business only seems to get better as the trend towards cashless payments grow.
Discover an Express-way
American Express Company (NYSE:AXP) and Discover Financial Services (NYSE:DFS) are two other credit card companies in the payments process business. The scale of their operations is not as large as the other two, but these companies will also benefit from the move away from cash. When talking in terms of valuation, these two look less expensive than Visa and MasterCard. American Express and Discover Financial have trailing P/E’s of 16 and 9 times, respectively, while Visa and MasterCard are trading at 44 and 24 times, respectively.