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

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

Comments

[Adesai]

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.

2008 Apr 10 08:08 AM

[hook]

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?

2008 Apr 10 09:10 AM

[Sean Miller]

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.

2008 Apr 10 09:40 AM

[joanne rosen]

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.

2008 Apr 10 09:54 AM

[Sean Miller]

to Adesai: the Visa IPO filing states: "Our business is affected by overall economic conditions and consumer spending patterns."

2008 Apr 10 10:19 AM

[texasgolfer]

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.

2008 Apr 10 10:47 AM

[bhamultimate]

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!

2008 Apr 10 11:54 AM

[User 169775]

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.

2008 Apr 10 12:24 PM

[joanne rosen]

Internet sales are only 5% of total sales

2008 Apr 10 12:52 PM

[The Messenger]

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.

2008 Apr 10 12:54 PM

[Rajaram]

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??

2008 Apr 10 01:48 PM

[New Investor]

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.

2008 Apr 10 02:11 PM

[Gaucho420]

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.

2008 Apr 10 02:19 PM

[Adesai]

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.

2008 Apr 10 02:41 PM

[Wez]

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.

2008 Apr 10 03:02 PM

[Sean Miller]

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

2008 Apr 10 03:12 PM

[User 172125]

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)-

2008 Apr 10 03:19 PM

[Sean Miller]

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

2008 Apr 10 03:50 PM

[User 172125]

Fine Sean- facts are facts- and in 18days its showdown at the OK corral- don't forget your revolver ..........

2008 Apr 10 03:56 PM

[Sean Miller]

touche

2008 Apr 10 04:04 PM