The world’s largest credit and debit card providers all reported quarterly results over the last week. All three stocks traded lower on Friday after Visa (NYSE: V) failed to beat EPS estimates for the first time in three years. Visa’s results proved there may be limits to how rapidly these companies can grow revenue, and competing effectively is expensive.
On the face of it, Mastercard (NYSE: MA) was the clear winner, with solid revenue and EPS beats. Non-GAAP and GAAP earnings were respectively 9 cents and 19 cents ahead of estimates. Revenue rose 16% and beat estimates by $10 million. American Express (NYSE: AXP) managed a respectable result, beating EPS estimates by 2 cents and delivering in line revenue.
Although Mastercard’s results stood out, the stock was priced for perfection and has already outperformed over the last year. The latest result reduces its price multiple, but the company must still maintain its momentum to justify the forward multiple which is close to 35.
A few of the trends over the last year illustrate how the three stocks are positioned.
Year-on-year revenue growth
Mastercard clearly wins on revenue growth with consistent acceleration over the course of 2018. American Express did manage to increase its growth rate, though it remains in the single digits. Visa’s growth came under pressure in the last quarter.
| Mar-19 | Jun-19 | Sep-19 | Dec-19 | |
| Visa | 8% | 11% | 13% | 10% |
| Mastercard | 9% | 12% | 15% | 16% |
| Amex | 7% | 8% | 8% | 9% |
Year-on-year growth in operating expenses
American Express kept the lid on expenses though they still outpaced revenue growth. Visa’s lumpy expenses may lead to revenue growth in later quarters.
| Mar-19 | Jun-19 | Sep-19 | Dec-19 | |
| Visa | 7% | 10% | 1% | 27% |
| Mastercard | 2% | 14% | 15% | 12% |
| Amex | 11% | 9% | 9% | 10% |
Year-on-year net income growth
Mastercard was the winner in the last quarter, having bounced back from a weak fourth quarter in 2018. Both Visa and Amex have seen a rapid slowdown in net income growth in the last six months.
| Mar-19 | Jun-19 | Sep-19 | Dec-19 | |
| Visa | 14% | 33% | 6% | 10% |
| Mastercard | 25% | 31% | 11% | 134% |
| Amex | -5% | 9% | 6% | -16% |
Operating margin
Visa has managed to maintain an enviable operating margin over the last year. Mastercard’s slipped in the last quarter but improved from a year earlier.
| Mar-19 | Jun-19 | Sep-19 | Dec-19 | |
| Visa | 67% | 67% | 67% | 67% |
| Mastercard | 57% | 58% | 59% | 55% |
| Amex | 20% | 22% | 22% | 19% |
Net profit margin
Despite the slowdown in revenue growth, Visa has managed to maintain a solid profit margin. Amex’s lower margins reflect a slightly different business and reporting model.
| Mar-19 | Jun-19 | Sep-19 | Dec-19 | |
| Visa | 54% | 53% | 49% | 54% |
| Mastercard | 48% | 50% | 47% | 48% |
| Amex | 16% | 18% | 17% | 16% |
None of these trends point to a potential acceleration in earnings for American Express. It does trade on a far lower multiple but will probably remain at a discount to Visa and Mastercard.
Visa stumbled in the last quarter, but the company’s increased spending may lead to revenue growth in later quarters. It also has stronger margins and benefits from increased scale. Mastercard may continue to outperform in the medium term but will have to maintain the current momentum. There may be an opportunity to switch to Visa if it underperforms meaningfully in the next few months.
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