Why Visa Should Thrive 65 comments
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Names like American Express (AXP) and Discover Financial (DFS) will be hurt with these delinquencies as they will be forced to write-down their portfolios. The pure-play card servicers aren’t completely recessionary proof, but history has shown that they perform well during these times, and extremely well during recovery periods. Visa Inc. (V) and MasterCard Inc. (MA) will continue to outperform their peers and are safe plays for any portfolio.
The Industry
Card Servicers are generally mis-understood by many investors. They operate as pure network use plays. They hold no credit exposure on their books, which is why they have performed so well in this market. They are paid per swipe and by purchase volume. Secular shifts in purchases also provide these companies with solid revenue streams.
So just how much money do they make on transactions?
As an example, let’s say you go out and purchase a watch for $100 by using your Visa card. Out of that $100 purchase, the merchant would usually pay 2%, or $2, of that fee for the use of the card (fees for merchants vary, as larger corporations like Wal-Mart (WMT) pay less than the typical Mom & Pop Shop). Out of that $2 fee, only about $0.20 go to Visa the rest would be paid to the issuer of the card (ex: Chase, Citi, etc.) and the bank it corresponded the transaction with. This is a pretty profitable business for all parties, but Visa acts as a pay-as-you-pass-go service because the transaction is made on their network, VisaNet.
The industry is also growing at a rapid pace.
With an increased focus on electronic and mobile payments globally, there has been a greater acceptance of card and electronic payments by merchants and customers. New methods of payments have also emerged, such as pre-paid cards, chip-based cards, and mobile commerce. The use of cards also provides convenience, security, debit/ready funds, and the ever popular rewards system. Visa does not give out the rewards that you receive on your card, those are left up to the issuing bank. Visa is also continuing to heavily invest in card and payment technology that will present exciting opportunities for the industry, such as contact-less and mobile devices. Paying for your purchase with Research in Motion’s (RIMM) BlackBerry or Apple’s(AAPL) iPhone is a thing of the near future, as agreements are already being worked on.
Where is the growth coming from?
Purchase transaction growth has grown at a CAGR of 14% from 2002-2007. Although this CAGR number is expected to decline to 11% from 2007-2012, there are many growth opportunities in emerging markets. Growth from 2007-2012 is projected to be solid around the world: U.S. 7%, Europe 11%, Asia/Pacific 19%, Latin America 13%, Canada 8% and ME/Africa 17%. Card purchases in 2006 amounted to 43.5% of total purchases worldwide. This number is projected to increase to at least 50% by 2009. Card payments have already over taken paper payments (ex: cash, check, money orders, etc.) in the U.S. In the U.S., card transactions currently represent half of the world’s card transaction. Approximately 43%, or $3 trillion, of PCE in the U.S., this number is expected to grow to 54% of PCE by 2011. This compares to 31% of PCE in 2001.
Market Share
Visa currently dominates the market across the board in total volume, transactions, cards, merchant outlets, and ATMs. On a total volume, transaction, and card base, Visa is bigger than MasterCard, American Express, Discover, and JCB combined. Out of the total credit card volume (excluding Europe), Visa operates with over a 60% share. Visa’s dominating market share isn’t a thing of the past, as transaction volume will continue to grow as they have issued the most cards versus their peers.
Visa vs. MasterCard
The similarities between the two companies are striking, as they both operate as card payment networks and don’t hold any credit exposure on their books. The main differences between Visa and MasterCard are their IPO dates; litigation issues; geographic revenue streams; size of networks; and efficiency:
IPO Dates…
You may wonder why these play such an important role to their differences in how they operate. First you need to understand the recent history of these companies and why they went public. Both of these companies were owned by member banks before their IPO. The networks wouldn’t operate for profitability because they were owned by the users of these networks. MasterCard went public in May of 2006 and saw its share price skyrocket over the past 12-18 months. Visa went public in March of 2008. It takes time for these companies to restructure themselves from basically a non-profiting entity to a highly profitable card servicing network. Because of this, Visa will operate with a 12-18 month lag on becoming extremely profitable. This creates an opportunity to investors to get in before performance takes off.
Litigation Issues…
One huge difference between Visa and MasterCard is how they are funding their litigation issues. Because MasterCard went public over 2 years ago, they must come up with the funds internally. Visa knew that investors would be wary about the litigation issues that were hovering from Discover and AMEX, so they protected their Class A investors in their IPO. All member banks are at risk for any litigation payments in excess of the $3 billion they set aside. They have an enormous cushion of funds from these Class C shares, and it will not dilute their common share holders.
Geographic Revenues…
One misconception between the two companies is that their common shares represent pretty much the entire world. This is not true for Visa. Visa Europe did not IPO with Visa Inc. in March. Visa Europe operates on a framework agreement, in which they must pay Visa a fee for using their name and their systems. They operate as a private company owned by its member banks. In March of 2009, Visa Europe has the option to sell itself back (at a pre-determined price). Visa Inc. also has a call option, which may be executed but only if Visa Europe performs extremely poorly (which will not happen). Therefore, Visa Inc.’s revenues depend more on U.S. consumers. This is good and bad at the same time. Obviously right now, there is a concern that consumers will not continue to swipe. It is a positive though because the U.S. represents the largest earnings stream because they are so large.
Size of Networks…
Aside from the market share mentioned above, Visa is substantially larger on a number of other metrics as well. One notable difference is the market share in debit card volume. Since Visa was really the first to enter this business, they have a substantially larger share. They operate with a 76% share, as MasterCard only has 24% of the market.
Efficiency…
One thing that many people aren’t aware of is the operating efficiencies of the two companies. Visa is much larger on revenue, earnings, and administration compared to MasterCard. This makes sense since Visa has more than a half a billion more cards in circulation than MasterCard. Their operating efficiencies (ex: revenue/employee, earnings/employee, expense/employee, etc.) are much better. Visa and MasterCard also spend the same amount in advertising which is interesting, since Visa has been able to gain more customers than MasterCard.
I think both are safe plays in this environment, but if you need to choose one it should be Visa. Watch out for Visa’s earnings this Wednesday. You’re not going to see a blowup like American Express, but be cautious. I think that they will report decent quarterly earnings, topping analyst expectations. What could hurt their stock price is the guidance, which is so crucial in this environment.
Disclosure: Author holds a long position in V
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This article has 65 comments:
We have been saying the same thing on our blog for quite some time and it seems that a few people are starting to get it.
visawinners.com
Jon
we put your link up at:
www.visawinners.com
vise versa. There's no reason they can't both do well in the long term.
I'm long V since IPO as well, so we need to see good guidance from both companies.
There is more than enough wealth to go around for these two companies to succeed. MA was able to get a head start in global markets- while V has retained its market share lead in the U.S.
V is making significant inroads into global expansion and has the best pool of affinity/strategic investors a company could hope for (including China Life/China's soveriegn wealth fund, Kuwait's soveriegn wealth funds, as well as some of the biggest banks in India and South America).
Long term V will take market share away from MA in emerging markets but MA has a more reasonable valuation to begin with which will partically offest this trend. Short term (2 years)- an investor can't go wrong with either.
V has a couple of hurdles to overcome (the discover (DFS) lawsuit will hopefully be resolved and is also a thorn in MA's side. But V is scheduled to buy back Euro C class shares in October- and a settlement with DFS, combined with the buyback should strengthen V's position substantially.
One more thing to note with regard to making a decision between V and MA is money flow. Institutional investors (money managers/hedge funds/mutual funds/large block holders) have been moving out of MA in a big way and into V in an equally bold pattern. Much of this was window dressing and profit taking BUT if you look at the money flow they (ins $) are placing their chips on V's table.
Then, there is always the compromise in the way of a split position.
Another thing V has going for it is the reduction of the options overhang. In prior months V had a much bigger call to put ratio putting downward pressure on the shares. As the market has receeded so to has the overhang.
Wed/Thursay will be very big days for all of us that invest in this sector as there hasn't been much in the way of news since MA settled with AMEX (AXP). AXP earnings and guidance was bad (although they have adequate reserve coverage to weather the downturn)- and may have actually helped us by lessening expectations.
We may actually have a positive surprise as people have turned to plastic durning the downturn. I still can't figure out why people do it but I am seeing more small transactions (less than 20$) everywhere I go- from Starbucks to the corner store. By the end of the week those of us that have been bullish will be vindicated or ridiculed- I am still positive that we will have a successful outcome.
www.visawinners.com
Ryan
concisetrading.blogspo.../
Why are you here- I have yet to EVER hear you comment on Visa?
Do you even own shares in Visa? If so, what is your opinion on the company?
If you are obsessed with other men may I suggest a male dating service instead- perhaps you will feel more comforatable.
It is a condition known as - 'Internet Angry Guy' aka Nerd Rage.
There is hope for you, however, as the condition is not fatal and can be cured using what remaining brain cells you posses to actually contribute something positive to the world.
www.encyclopediadramat...
As far as Seeking Alpha I have spoken to the President and voiced my concerns and he was very receptive. In fact, my new website will be running an ad campaign on Seeking Alpha and I look forward to being a bigger part of this site going forward.
All of our blogs and our upcoming website and forum will be in SA's corner.
For those of you new to this site we do tend to get spillover from Yahoo and Google- but, overall - Seeking Alpha provides a wide variety of coverage on many of the 'hot stocks' of the day.
We have several blogs that cover many topics but I only post my blog address on an other blog or site if I am reciprocating by providing that author a link-and in doing so not spamming. If you are a serious V or MA investor we have a blog devoted entirely to the processing sector:
www.visawinners.com
Large merchants, like Citi, Chase and B of A accounted for 50% of Visa transaction, Top 10 banks accounted for over 70% of Visa's transaction in the US. the reaction is simple, these large banks want to share that 20 cents. Visa had to rebate back majority of that 20 cents,let's say 15 cents to large card issuers thru rebates and Visa keep about 5 cents. And smaller issuers: sorry, no rebateds.
The amount of fees V and MA can keep will get smaller, and smaller. as they will compete for both large and small issuers.
Card issuing business is great business, most people simply have no clue about mirco-economics. Discover and Amex, or COF can simply jack up interest rates customers paying, therefore customers pay for higher charge-offs. It's called risked based pricing, people .
Can V and MA jack up fees on card issuers? No. V and MA now thet have to compete against Discover networks and Amex for card issuing businesses. The reason V and MA had so large of market share were quite simple, the exclusionary rules they had against Discover and Amex. But that rule is over, gone. Discover and Amex have large consumer base that will not defect over night. V and MA have large customers base can switch to other networks overnight when pricing and incentives are right.
During the internet bubble, people too much focus on how fast internet is growing, without worrying about competition in the web space. any way, transactions on card networks will grow double digits for sure, but can V and MA keep those banks from jumping to Discover or/and Amex for a lower fees or higher rebates?
Visa Inc. = US consumers hmmmmmm.
So as Visa grows internationally let's say in Europe, the only benefit Visa Inc. gets is some small fee percentage vs. the overall profit stream. Whereas MC when it grows its numbers worldwide, the stock benefits to a much greater degree. If I have this right, it looks like its MC. Agree that Discover and Amex will be very competitive as well.
I do, however, have to disagree with big chunks of your reasoning.
For starters, Citi does not even issue V cards. Aside from that, of course the majority of banks are responsible for the 'credit' side of V transactions- as they are the ones issuing credit cards.
As far as your information I don't know where you are getting it but there is no wide-scale 'rebate' plan in place generating revenue back to issuer banks.
As far as interest rates- these are as much a part of the current regulatory framework as it relates to credit/debit processing as interchange fees. Any such adverse regulation would likely hurt both the DFS/AXP camp as much as the V/MA side of the industry.
As far as market share- one of the main reasons I am not concerned with a deep hit from a either a settlement or verdict in favor of DFS is that their market share is relatively flat even AFTER V/MA were forced to back off prior business practices.
As far as market share-going forward- 80% of new global volume is going to MA/V.
V and MA are both aware of the climate for doing business in the US- and like many international companies are going to experience exponential growth in many developing markets. In fact, both cos recently upped their estimates signficantly for non-US global growth recently.
As far as multiple lines of business- DFS is not even worth talking about- their biggest 'transaction' recently was a 150mm buyout of Diners Club- a card that is barely recognized.
AMEX is bogged down by its travel/travel services and increasing default ratios and will be treading water for the next couple of years.
As far as V- (over MA)- V has the BEST GROUP OF AFFINITY SHAREHOLDERS/INVESTORS ever compiled in the history of business (specific to its size and business model). V is in a much better position to take market share from MA and expand dramatically in all top tier growth markets (India/China/Middle East- and South America).
This is why you will see differerent result this week from V and MA than you saw from DFS and AXP.
Also- In October V has a major C Class Euro buyback (with cash in hand already) which will greatly reduce float by over 100mm outstanding- increasing P/E - and valuation.
But I do appreciate you at least offerering a well thought out argument.
www.visawinners.com
I think you also forgot to mention that V has a significant market share in non-US global markets and will do nothing but take market share away from MA in coming months/years. V has compiled a much better group of long-term shareholders from a global perspective and look for them to capitalize on those relationships going forward.
Further lack of oversight and the never-ending expansion of government as the State and Federal levels has led to abuse. If the government were actually audited the same way a publicly traded company is- and politicians faced the same consequences as CEOs -we wouldn't have enough prisons to hold them.........
I am actually doing a 50 part piece on this on one of our blogs. Up to #17 right now:
www.virtualwallsteet.n...
virtualwallstreet.net
On Jul 28 04:07 PM VWinner wrote:
> Murphy- Yes we are going through some very tough times. Unfortunately
> much of this could have been avoided. The root problem actually began
> with the enactment of modern 'social programs'. By enabling people
> we created a second class in this country dependent on handouts from
> Uncle Sam (actually those of us who pay taxes).
>
> Further lack of oversight and the never-ending expansion of government
> as the State and Federal levels has led to abuse. If the government
> were actually audited the same way a publicly traded company is-
> and politicians faced the same consequences as CEOs -we wouldn't
> have enough prisons to hold them.........
>
> I am actually doing a 50 part piece on this on one of our blogs.
> Up to #17 right now:
>
> www.virtualwallsteet.n...
My rebate info is correct, just look into V and MA's 10-Qs and 10-Ks. each transaction, V and MA get a fee, 10 cents + .1% of face value of the transaction. V and MA are doing great right, in fact they will blow out the earning in next few days, but these two companies will see their fees taken away by card issuers.
Discover and MasterCard pay almost same amount of money to IRS last year for its income tax. MasterCard amortizes incentives to card issuers over the life of the contract, Discover on the other hand deducts the incentives in the month payment occurred as contra-revenue account. Discover under-report its earning
The key is not looking back what happened in the past, but what is going to happen in the future. I expect transaction volume increase double digits, can Visa and Mastercard still keep the same portion of pie on each transaction. I think their fees are going to erode away as issuers want to get larger portion of Visa and MA's revenue.
MasterCard is the first one going to take a hit, since most cardissuers have sold stock in MA.
Vwinner, the question is simple, most cardissuers in US were duo issuers since they owned V and MA. Now many issuers became single issuers, WM is exclusively issuing MasterCard. What make one issuer pick Visa over Mastercard or Discover Card? I think the answer is Rebate. If that's the answer. Do you think rebate incentive will pick up steam, therefore erode V's profitbility?
I bet the other way, I bet against grain.
Can you tell me anyone is bearish on MA and V?
With regard to issuers attempting to ratchet down already reasonable fees by using DFS and AXP as leverage - I also don't see that. Its sort of like Netscape battling Explorer as a browser- eventually the bigger, stronger machine wears down its rival.
I just don't see the same thing you do with regard to V and MA market share being eroded by AXP and DFS. DFS is not even worth talking about (unlike AXP). DFS has such a small market share, so fewer services, and quite frankly Amex should by them if they want to be a real contender. AXP - on the other hand does bring a well oiled small business machine (but even that is being eroded by V and MA) but they offer horrible customer service. I've had personal and corporate cards with AXP and would never go back. I'm sure many people/companies have had similar experiences.
As far as being bearish on DFS and AXP- I am bearish on DFS as I don't see it as being a viable multi-national company going forward. AXP is a good company long term- and if you are a patient investor the shares are priced well right now. AXP- unlike V and MA- will be far more impacted by the economic downturn however and are not a 'fast money' type of play.
All of this is banter anyway- in a couple of days we could be elated that V and MA were able to buck the trend - OR we could suffer yet another disappointment...........
I like V and MA because the entire planet is going through a plastic revolution. Credit and debit cards are relatively new to most of the developing world and are poised to generate huge processing and transaction fees to these two companies. Online commerce (and the use of V and MA to facilitate these transactions) is continuing to explode worldwide. Last- these companies have such a lead in market share, name brand recognition, and acceptance that to me its like the lynix vs. windows battle. To me V is Verizon, MA is ATT, Amex is Tmobile, and Discover is Sprint. My analogy for the day...
Both companies have already seen fairly large corrections over the past couple of months. I would say that bearish investors and non-believers id already take a stand with these two companies.
Card networks are hard to duplicate, since you have to have critical masses on both merchants and users. As for which card brands will doing best, that's an easy all: Discover by far, it's only selling for 6 billion, Vs. 55 Billion for V, 30 B for MA,and 41 B for Axp. V and MA used to have this rules banning banks from doing business with Discover, therefore, Discover's acceptance is only half of Visa's in the US. But by early next year, Discover should reach parity with Visa in US. To get banks to issue Discover branded cards is quite easy, shower banks with up front payments. So I think Discover will get lots of business. That's not much different from signing up new cardusers. Banks renew their contracts with Visa and Mastercard every few years. Next time a bank is up for renewal, it will seek the most money from Visa, MasterCard and Discover.
When asked why people pick one card brand vs another one, 55% of people said acceptance. Once accpetance parity is reached, Discover should get much more business at Visa and MasterCard's expense of course.
Return on equity for Visa and MasterCard are approaching 100%, that's increditbly profitable, and Amex and Discover have 30%+ return on required equity. Phone companies, they are terrible. They don't really make much money, it's all accounting shanagan
For Visa to grow its network volumes that's very difficult, since this bitch is already too big. But for Discover to grow its third-party volume, that's easy, it grew 30% in 2nd Q.
Talk is cheap of course, we will see if V and MA can maintain their pricing.
V has 2.5 trillion volume, law of large number suggests that it can grow no higher rate than the overall industry.
Anyway, I think all four networks are going to do extremely well. how much do you think MA and V going to pay to Discover for their past sins (exclusionary rules)?
First Verizon and ATT are great companies with bright futures. The analogy was more of a rank of importance analogy than anything else.
Second- I don't know why or how you think DFS will reach parity. Much of what you say makes sense but I'm having a hard time figuring this one out... You bring up prior business practices of V and MA (which are part of corporate evolution)- so why is it then that DFS has had several years unmolested and its market share has barely moved? Also- as far as domestic- that's not where the real growth is- and I don't expect diner's club to be setting any records in global markets.
Third- You say that acceptance is key to usage- but prestige is also very important- and DFS is the Wal Mart of cards. I would personally feel embarrassed to whip out a DFS card. Having travelled extensively, and knowing people from all over the world (and having members of my blog from a couple of dozen countries- having a V or MA IS a status symbol and carries weight in much of the world. AXP does have the prestige angle covered- if you have a Amex black- you really have arrived- i'll say that for them.
Fourth- You mentioned phone companies again- not talking about revenue- talking about market share- and potential (or in the case of DFS -Sprint- lack of potential).
Fifth- You mentioned V not owning V-Euro (which was a strategic move on their part). You seem to be adept at reading SEC filings (10k/q-etc). I suggest you go back and read the S-1 Registration statement. Over ten BILLION dollars is being spent in October by V to buy back V Euro shares. Eventually (when regulatory/interchange issues are resolved) V Euro will fold into V. In the meantime float will go down by about 12% - bringing up P/E- and strengthening valuation.
6. Industry Volume- I really think V and MA have to lowball global numbers- as the true potential would be a hard number to swallow IF
global expansion is as rapid as we expect it to be. I keep going back to the same theme - V is much better positioned from an investor standpoint than practically any company I have ever seen. IE- Their investors will be their biggest customers and strategic alliance parters. THIS, more than just about anything else- is why I like V so much- I know what their investor base can do for them as they will be doing it as much for themselves.
7. The last comment was the best and is absolutely true. I think all 4 networks will do extremely well. I also say that at these prices it would be hard to go wrong with any of them. Having said that- I'm still a V fan. There is NO harm in diversifying however, and we at least agree on one thing.
8. Past sins- less than 1 billion for V (less than 2 billion combined with MA. Why- Amex settled with V for 1.8 billion-dfs less market share and DFS hasn't gained much market share (unlike V) since restrictive practices stopped. I also predict a settlement next month. Trial set for Sep- and I think DFS would be happy with the cash- and V and MA would be happy to be done with this and only have the 50 merchant class (now bundled) suit done soon after that.
www.visawinners.com
I figure there are probably plenty of business for all four networks. I disagree with you on whom uses Discover cards, In fact, among Discover cardholders, many of them are rich. By the way, how do you become rich? Being very cheap. I use a Discover card since my freshman year in college. Cashbacks, ShopDiscover are few rewards attract lots of cheap people. I don't use Amex to show off. In fact, I know lots of people who are completely broke and use Amex cards. The no.1 Problems Discover had was acceptance. Who are the ones signing up merchants? Aquiring banks or merchant acquirers. V/MA banned Acquiring banks from signing up Discover for Merchants. In many cases, that helped Discover, and that's the reason why we only have four networks.
Starting a new network is probaly too hard. There are 7.2 retailing locations accepting Visa and MasterCard, another 20 locations outside of US. So to build a global networks are mission impossible. I don't think it can be done. Do you?
You are asking why Discover has not signed up more card issuers? It's very simple, the card issuers had already owned their own networks - Visa and MasterCard. It's the same reason Discover will not issue Amex Card. Visa and MasterCard allocated their IPO shares based on the cards banks issue. So if banks switch and issue Discover card, they will not get any Ma/V IPO shares. I love to have some shares, wouldn't you? That's why no one switch to Discover, except few issuers.
But now, both V/MA are independent, and lots of issuers sold their stocks in V/MA, the table will start to turn. Prospect of getting more issuers to issue Discover Cards will get much better.
Anyway, Like I said, there are plenty of business for everyone, especially globally. Visa can jack up merchant fees one penny here, two cents there to make earning look very good.
I owned MA and then sold it its legal problems, MasterCard could not get an investment grades from Moodys and Fitch due to its legal issues. Discover in fact can make a very good argument here against V and MA, due to banning acquiring banks from signing merchants for DFS, Its US acceptance was only half of Visa's. That did lots of damage to Discover business. That's not a question. The question is how much, and these damage are tripled under federal aniti-trust laws.
I think the potential damages to Discover is much higher than Amex got from the settlement
Other 50 lawsuits are bogus B.S. I don't expect Visa would pay anything for these lawsuits, they all centered on the perception that Visa was over-charging merchants, but these allegation are bull shit. Merchants were willing to take Amex for a fees significantly higher than Visa for years, why then bitching about fees that are lower than you are willing to pay (Amex fees)?
As some have touched on, Visa enjoys an unmatched suite of merchants. It isn't even close. This is an extremely difficult thing to do and is one of the primary reasons why switching costs for banks are so high. Think -- would a bank who is already enjoying 90% of the fee revenue through Visa really care about 1-5% more of the pie when it means *major* sacrifices of breadth and therefore revenue? Conversely, would a merchant switch networks if it meant that it would dramatically inconvenience potential customers? The answer to both is an emphatic no, and is an enormous barrier to entry for V.
For an easy example of this, look to Google. There are massive network effects in search (and, more importantly, search advertising).
In the network business, scale begets scale and is tremendously difficult to overcome for the competition.
The author of this article says, "In March of 2009, Visa Europe has the option to sell itself back (at a pre-determined price)."
And later in the commentary V Winner says, "Also- In October V has a major C Class Euro buyback (with cash in hand already) which will greatly reduce float by over 100mm outstanding- increasing P/E - and valuation."
V Winner, if I remember correctly you've mentioned many times in the past that Visa would be buying Visa Europe back in October of this year.
I'm confused. Is it October 2008 or March 2009 that the buyback of Visa Europe is happening?
Thanks for clarifying.
Before I start I will say that this is now officially (in my know-it-all opinion) the best line of discussion that we have all had on Seeking Alpha. Bravo!
Yes- me an Mr. Bill are having a little run-in- but it seems fairly civil compared to the past. And, yes, I never claimed to be a 100% unemotional human being Mr. Bill- but keep in mind I only respond to those that attack me first. If you want to keep it civil I will do the same- there is no reason to bring this site down to the level of Yahoo finance and that is why we are here and not there (which was the reason I WAS down on this site- but have become more optimistic as time has passed). So- in the interest of furthering our common goal (making $$$) I think we should put the BS aside- realize that we are having a serious problem right now and re-focus our energies on the few companies out there that can actually make money right now (like Visa).
Now- moving on to better topics:
Seeking Alpha has improved as has a good percentage of its authors. I'll be the first to admit when I'm wrong- and give credit where credit is do. Seeking Alpha will have a perma-link on my upcoming site as they have been kind enough to let me link to my own blog. I'm also going to advertise with them.
Mojo-Look, here's the deal. At today's price any of the four are a bargain. Its just a matter of time-frame. Given that DFS and AXP do carry credit balances they will have a much tougher time as default rates continue to increase. Bottom Line.
Long term- there is room for four. DFS will benefit from the MA/V suits as I can't imagine a scenario where they don't settle BEFORE going to trial. If this does go to trial it will only be because V/MA are so convinced that their case is airtight that they are not worried about the outcome (but I don't think either will take that risk). If a settlement is reached it will be under a billion for each- and over time (like AXP) and will most likely have a positive outcome for MA/V (like AXP).
As far as more banks issuing DFS instead of V/MA- I still find this highly doubtful given the huge infrastructure (as well as vested interest) on the part of issuing banks. Keep in mind that V's bank shareholders have a 3 year lock-up and can't unload even if they want to and won't canabalize their own investment. That takes us out to 2011- and first mover advantage will be cemented by then.
Wolfpack- and 1000 share guy- don't worry about earnings- its guidance that concerns me (but not that much). V and MA have only had 3 bad years out of 30 - all during recessions and at a time 17/18 years ago when 70% + of their biz was domestic). Global growth is on fire. I expect wed/thurs to further differentiate v/ma from dfs/axp.
Joe OD- Mr. Bill and I finally agree on something- that was an excellent post- and goes back to my argument about Mojo's position/assumption that banks will just switch over. Good comments.
Visaman- how are you doing? I know you.... I think what he is talking about that was in the S-1 (registration statement/IPO Doc). He is not contradicting my point. The October buyback is not an optional thing- IT IS HAPPENING. 10 billion dollars has already been set aside. (I'm not going to go back and dig through my facts but it is something like 101million shares C-class Euro for 10.4 billion. This is already happening- and eventually the C class will be merged into A class (trading shares).
No need for confusion. The C class shares are being bought back already. The option gave V euro time to navigate through the regulatory/banking issues -and then fold into the 'parent'- without locking in a timeframe to ensure that V (USA) is able to resolve its difficulties and they are both able to merge without further complicating things. Think two people in love but both in the process of divorce-AND settling their financial difficulties before getting divorced so that they can marry the one they love and start fresh. (if that makes sense then I have fully conveyed just how confusing the actual situation is).
Now let's all stay focused - the market is beating us up enough. I would bet that there isn't a person on this whole board that has not lost serious money - or made the wrong way bet on oil/commodities/bankin... or some other sector this year... We don't need to beat up on eachother- lets make this site better than yahoo/google- its up to us.
www.visawinners.com
Would be nice to have a spell/grammar checker on a blog for once
Just keep in mind that AXP and DFS are not the same as V and MA.
What I would suggest you do is take your time to learn about each company first- and then make your decision. If you type in any of the above forur symbols in the 'search' section of this blog you will find company specific articles on each.
Also- keep in mind timeframe. DFS and AXP will be longer term due to the fact that they carry credit and MA and V don't.
Last- earnings on V are Wed and on MA thursday- and if you are new to investing in this sector you may not want to roll the dice until after earnings (but then again if you are a risk taker and believe that V and MA will report solid earnings you may want to build a little position -tomorrow)
Good luck this week for everyone involved in MA or V- my personal belief is that both companies will do well but be obligated to provide cautious and conservative guidance. I wouldn't expect either to get slammed but don't expect a miracle either. In other words don't bet the farm on earnings....
I think that for any of us that have put our links to SA we should do the same. After speaking to the President I was impressed that he and his team are on the right track and are constantly looking to improve the quality of author and related content.
One day away from V reporting!
Two days away from MA reporting!
This will probably be one of the most important events for both companies for some time. A lot of people are watching and there are very few companies investors can flock to right now. Now that oil has receeded, and many commodities have corrected- there are few 'shelter plays' left of Wall Street. Solid earnings and guidance could bring serious money flow to these two titans of processing. A let down could be devistating.
I am hoping that investor expectations are weak and that anything in the 'better than expected' category will produce some strong results. Being optimistic I would love to hear something like "we still haven't seen an effect on our processing and transaction volume" (like last time)- and then "global growth is making up for the U.S. downturn".
But then again- we could hear- "the strains of the US economy are finally being reflected in our volume" and that - "we are making adjustments to our earlier projections with regard to global growth rates (downward)". This would kill us.
What do I think will happen?
V's processing and transaction volume has not gone down- although current economics will obligate Saunders to express doubt and fears about US markets.
V is spending a considerable amount of money on marketing right now (which they warned us about last quarter)- but expect long term results from name brand recognition in global markets.
Global growth has continued to be robust and seems to be unabated. Although, as in the US - expect the Caveat- that 'we are concerned that a global economic slowdown could adversly effect our transaction and processing volume' blah-blah-blah
I expect a slight surprise amount (like last time) not a blowout- but a nice little bump. I expect that the cash to plastic move will partically be offset by those actually losing cards - so I expect to see a bump in trans/volume processing- but not a big one.
I expect that V's earning and guidance will pretty much validate and vindicate those of us that share the view that V is pretty much recession proof.
I expect that we will see a nice little run as people feel safe that V- if nothing else- will keep your head above water- and expect to see the shares hit at least 80 within the next 30 days.
Those are my predictions for V. I would like to be more optimistic than that-but given current econ circumstances- it will be hard to see V break its previous high anytime soon.
So- I've put my prediction out there- (and actually hope I'm wrong on the upside)- anyone else care to venture a guess?
Not only would I like to hear your guess here- but on our dedicated Visa blog (and while you are at it- feel free to place your 'bet' on MA as well)
www.visawinners.com
Disclaimer: For those of you that think I am spamming on this site- I am going to give Seeking Alpha a perma-link to my new website and have already discussed advertising with them. The ONLY reason that I am putting a link up to the Visa site is that we are the ONLY blog that is entirely devoted to Visa and the plastic revolution and you will see that the blog does not advertise or generate revenue.
CAN YOU SAY DEBIT-DEBIT-DEBIT??
KeyBanc initiates coverage- of the credit card PROCESSOR with a BUY rating:
"noting that the company's dominant presence in the debit market should help shield it from the economic downturn".
Up 5.6%
Probably see a sell off this afternoon of the short term oppurtunists but V is looking like it will break 75 before earnings........
Seeing the look on Greencap's face as V more than doubled MA's one-day rally:
PRICELESS
Just kidding greencap- maybe tomorrow will be your day..... I expect to see some serious after-hours action on MA after V's call.
Good luck to everyone tomorrow. The only downside to today's rally is that expectations are being priced into the shares. Hopefully results will meet expectations or we could just as easily see these gains erased- and then some....
here's a link to show how large banks' shares of Visa's Volume
www.nilsonreport.com/p...
Visa simply can not afford to lose any of these top ten issuers to either MasterCard or Discover
For example, last quarter V beat earnings (I think they came in at .52 a share) BUT guidance was weak and shares immediately tumbled.
That is what I was talking about earlier when I said I don't like these big run-ups because too many expectations are built in by the time the earnings are announced and anything less than stellar numbers is then a letdown...
I'm still holding out hope that V was able to generate strong debit numbers, international numbers (Q3- was through end of March for V-so non-US slowdown hadn't really had a chance to take hold)-and an optimistic view with regard to weathering the rest of the storm.
16 1/2 hours to go.......
Will post your link on our blog-and you are welcome to come on by and contribute.
Jon
ED RUSH
These are two of the best comments on this thread (see above)
Earnings call @ 5pm today (link on our site)
Check back later,
Jon
www.visawinners.com
Like I said earlier, rebates are going up , way up, by 58% in fact, from 175 Million to 274 million dollars
Visa faces a potential price war with MasterCard, which could lead to the defection of large clients
what do you think?
Yeh- I am shocked people didn't see past the one-time hit and look at the big picture.
Like they say in NY waddagonnado?
I think at these prices MA is a good deal. Ridicule me all you want.
I also think V is a great deal right now (72) last I looked.
Its V's action the last couple of days that has been a disappointment- but then again I posted the 8 reasons (my opinion) as to why this happened.
Its a problematic market for just about everyone and everything- just a bad-bad year so far.
But I have decided to make my mission having FUN the rest of the year- yes FUN- and I don't give a shit if it sounds childish.
For me - I have lost a lot of enthusiasm for trading/investing/life (and yes- V)- but I'm not going to let that get me down.
I think we all need to work on making lemonade out of lemons right now.......