The latest, shining earnings at MasterCard may represent a trend within the financial sector. While major banks have struggled with immense volatility, falling earnings and the looming economic factors, including slow job growth and a weak housing market, credit card companies have proven deft at escaping such factors. While the slow growth and weak consumer sentiment could be expected to have a deleterious impact on credit card companies, the opposite appears to be true and companies are thriving well beyond expectations.
With price levels for many of the premier creditors approaching their 52-week peaks, some investors may be tempted to write them off on the basis of their technicals. That may be a mistake. Emerging economies present credit card companies new avenues for growth that could help them continue to grow their profits regardless of the domestic economy. Year-over-year, world-wide purchase volume increased by 17.2 percent, with a 20 percent increase specifically focused in international markets. If this overseas momentum is to continue, so will the upward trajectory being experienced by credit card companies.
India is an excellent example of the possibility. The middle class in the nation is coming into its own at an exponential rate and yet credit card use remains minimal. The more established the nations becomes, the more credit cards are likely to become a part of their daily lives and the more investors in related companies can stand to profit. According to the most recent statistics, roughly 85 percent of total global payments are made in cash. While cash will likely be around for some time, the percentage of purchases it is used for can be predicted to decline dramatically in the coming years as nations like India, China and Brazil continue to experience unparalleled economic growth.
With this in mind it may be worthwhile to compare the two top names in the business.
MasterCard (MA) far surpassed earnings expectations for the third quarter as a significant and unexpected rise in card member spending and improved margins helped shares gain close to eight percent in Tuesday trading. The eight percent rise is minor compared to the 60 point increase MasterCard has enjoyed year-to-date. The stock is currently nearing its 52-week high but the latest earnings have convinced top analysts that there’s room to go higher.
Earnings per share at the company weighed in at $5.63 while gross dollar volume grew by 18.1 percent. Among the factors influencing the growth is rising prominence in Brazil and overall international activity according to the company’s Chief Executive Ajay Banga who described a “double-digit increase in volume and processed transactions in most regions around the globe.”
If MasterCard continues to expand its presence overseas the company and its investors can be expected to reap major fiscal benefits both short and long-term.
Visa (V) is considered to be the largest credit card company in the U.S. but the company has been steadily losing marketshare to MasterCard. Visa’s newly implemented fees for debit users have prompted a shift in many formerly loyal customers both on a business and individualized basis. MasterCard has successfully poached several top clients from Visa, including Huntington Bancshares and Suntrust Bancs. While Visa may stay number one for sometime or reconsider its latest round of fees, the fact that the company is losing customers to MasterCard makes the latter seem like a more appealing investment option.
That said, Visa’s business is still growing, even as MasterCard bites into their debit card business. Last week Visa’s earnings indicated a 14 percent rise in profits. The numbers beat out analyst expectations but still paled in comparison to the 38 percent growth levels at MA. Revenue came in slightly below projections for the company even with the gains; however, as debit card use was lower. So far this year, MasterCard has solidly out performed Visa and while Visa is more affordable, MasterCard appears to offer more room for growth.