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Visa Inc (V), Mastercard Inc (MA): A Stellar Quarter if You Ignore the Missing $1 Billion

I hate it when $1 billion goes missing don’t you? Much to my surprise, in Visa Inc (NYSE:V)’s most recent earnings, the company reported stellar growth by nearly every metric investors could ask for. Between strong growth, and a new multibillion-dollar stock repurchase program, the market reacted positively to the company’s earnings. However, the company’s outlook leaves a rather large question unanswered, and if I were an investor I would be more concerned with what the future holds than what happened in the last three months.

The Quarter That Was
I would have to be crazy to question Visa Inc (NYSE:V)’s excellent performance over the last few months. The company reported 20% earnings growth, which is better than MasterCard Inc (NYSE:MA)’s last quarter increase of 16%. This performance also places Visa significantly ahead of American Express Company (NYSE:AXP) and Discover Financial Services (NYSE:DFS), which reported earnings growth of 10% and 2% respectively.

Visa Inc (NYSE:V)To say that Visa Inc (NYSE:V) is capitalizing on the move towards more electronic transactions would be an understatement. The entire industry should benefit from this continued trend, but Visa significantly improved their processed transactions on a quarter to quarter basis. Last quarter, Visa reported a processed transaction increase of 6%, which was half of Mastercard Inc (NYSE:MA)’s increase of 12%, and less than the increase American Express Company (NYSE:AXP) reported of 7%.

Considering that last quarter Visa Inc (NYSE:V) only beat Discover Financial Services (NYSE:DFS)’s 1% increase in processed transactions, some investors might have questioned if the company was falling behind. Those fears should be laid to rest, as this quarter Visa reported total process transactions jumped 14%.

Another way that Visa Inc (NYSE:V) has consistently led its peers is by reporting a higher operating margin, and this trend continued into the current quarter. Visa’s operating margin came in at 60.91%, and the only competitor to get close to this number was Mastercard Inc (NYSE:MA) at 58.08%. While Discover Financial Services (NYSE:DFS) carries a decent operating margin of 52.05%, American Express Company (NYSE:AXP) doesn’t come close to its peers with a margin of under 28%.

Visa Inc (NYSE:V)’s widely reported new share repurchase authorization should continue the company’s commitment to returning value to shareholders through decreasing the company’s diluted share count. That being said, two of Visa’s peers have actually retired a greater percentage of their shares on a year-over-year basis. Leading the way is Discover Financial Services (NYSE:DFS) with a diluted share decline of 6%, followed by American Express Company (NYSE:AXP) with a 5% decline. Visa’s share buybacks have decreased the company’s diluted share count by 3.45%, which is slightly better than Mastercard Inc (NYSE:MA)’s decline of 3.15%.

However, if you look at Visa Inc (NYSE:V)’s performance overall, it’s hard to quibble over the company’s share repurchase program. Most investors would be more than happy to trade a percentage point of share count for strong current earnings growth, transaction growth, and class-leading expected earnings growth as well.

A One With Nine Zeros Behind It
I sometimes worry that investors don’t read earnings reports carefully enough. What’s amazing is some companies don’t even say anything is wrong, but traders read between the lines, sell the stock, and ask questions later. In Visa Inc (NYSE:V)’s case, the company clearly stated that their free cash flow could be significantly different between 2013 and 2014, and yet the stock is up.

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