Is MasterCard More Attractive than Visa at this Price Point?
- By Sangara Narayanan
There is not much to differentiate between MasterCard (MA) and Visa (NYSE:V) when you look at them from a business model point of view. They both operate in the same industry and their scale and reach are much better than any other payments technology company. But things get a lot different when you analyze them from a metrics point of view.
Visa's global transaction volume in 2015 was nearly double that of MasterCards. Visa's sales numbers have been growing at a much faster rate during the last four years and Visa is valued at 14 times sales, while MasterCard sits at a little more than 10.
Warning! GuruFocus has detected 3 Warning Sign with MA. Click here to check it out.
The intrinsic value of MA
Let us take a closer look to understand why Visa's valuation is much higher than MasterCard's.
MasterCard had $9.66 billion in revenues in 2015, while Visa closed the fiscal at $13.88 billion. Though the difference was less than five billion dollars, Visa's market capitalization of $172.5 billion dollars is nearly $67 billion more than MasterCard's $104 billion. The difference in revenue growth rates between the companies seems to have affected the valuation by a huge margin.
Visa's revenue growth in the last five years has been almost consistently better than its rival's, although the latter seems to be performing much better this year.
As you can see from the table above, Visa's growth numbers were much more stable than MasterCard's, which was all over the place. The key point to note here is that back in 2006, MasterCard's annual revenue was $3.32 billion while Visa made $2.9 billion. Visa came in from behind to create a near $3 billion lead over MasterCard by 2016. What is even more significant than that is Visa's payment volume during the most recent quarter increased 10% to reach $1.3 trillion, while MasterCard's volume grew 9% to $897 billion.
With hundreds of billions more in transaction volume, Visa is the clear winner so far, even though these companies together rule the electronic payments market. The consistent growth and stability of Visa has made all the difference in the power equation between the two companies. So where does that leave MasterCard?
During the first six months of the current fiscal, MasterCard's revenue grew from $4.62 billion to $5.14 billion - a growth of 11.2% - and the company expects to finish the year with high single digit growth, which they should be able to easily do.
"We carried solid momentum into the second quarter, delivering 14 percent revenue growth for the first half of the year, after adjusting for currency," said Ajay Banga, president and CEO, MasterCard. "With last week's VocaLink announcement, we will expand our capabilities beyond core card-based solutions into a broader set of transactions and payments. The collective technology and experience will provide consumers, businesses and governments more choice and value in how they pay and are paid."
- Q2 Earnings Release
From a P/E TTM perspective, Visa is trading at 34.8 times earnings while MasterCard is trading at 28 times earnings. As such, MasterCard looks like the more attractive investment. However, I have written before about this dividend duopoly and I still believe that both companies are a must in any serious portfolio. The key is to be very aware of the price you are paying for their stock. Add them slowly and build into a position over time.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Sign with MA. Click here to check it out.
The intrinsic value of MA
