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When MasterCard announced its quarterly earnings on Wednesday -– an 82% surge in quarterly profits -– there were probably few people watching as intently as the executives at Visa.
MasterCard (MA, news, msgs), the nation's second-biggest credit card brand, surpassed Wall Street's expectations in its first full quarter as a publicly traded company. Investors bid up shares by 15% on Wednesday to $85.07, up from $39 when the company went public in May.
For Visa, the nation's No. 1 credit card network, that seemed like good news indeed. That's because Visa is planning to follow its top rival and sell shares to the public as early as next year.
MasterCard went public during the hottest IPO market in six years, raising nearly $2.4 billion in its IPO. Wednesday's run-up gave the Purchase, N.Y., company a market value of $11.4 billion.
Given Visa's size and market dominance, many analysts expect an initial public offering to value Visa at a significantly higher level.
Morgan Stanley analyst Ken Posner says it's too early to know how Wall Street will initially value Visa. But MasterCard's strong second quarter suggests that Visa will likewise be able to boast of growing revenue and profit margins as it puts itself up for sale.
"And stock options will provide Visa with a high-powered incentive with which to motivate employees," Posner said.
San Francisco-based Visa last year held about a 60% share of credit and debit purchases, compared with 27% for MasterCard, according to the Nilson Report, which tracks the payments industry. In the first half of 2006, Visa reported $771 billion in transactions, compared with MasterCard's $411 billion.
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The IPO would allow Visa to invest more nimbly in new payment technologies, like those using cell phones or smart cards, which are embedded with microprocessors or memory chips and don't require access to a remote database at the time of purchase.
In posting its quarterly results, MasterCard cited these new payment technologies. "These strong results underscore our success in displacing paper-based forms of payment in all corners of the globe in the face of a highly competitive payments market," Chief Executive Robert Selander said in a statement.
For both MasterCard and Visa, the cash infusion from going public can help cover legal expenses and the potentially billions of dollars in legal damages over antitrust and unfair-pricing claims by retailers.
A number of large merchants and retail trade associations have filed suits against Visa and MasterCard over the fees they charge for processing credit card transactions, arguing that the card companies have colluded to keep out competition and set fees too high.
Visa and MasterCard settled one such lawsuit, led by Wal-Mart Stores (WMT, news, msgs), in 2003. But a lawsuit filed by Kroger (KR, news, msgs) and other grocery and convenience store companies is pending.
As public companies answering to shareholders, MasterCard and Visa would be insulated from additional charges of collusion, Posner said.
Visa is currently owned by the more than 20,000 financial institutions worldwide, from small credit unions to major global banks, that issue its credit and debit cards.
Visa's products are accepted at more than 24 million locations worldwide, including 1 million ATMs. The company says its 1.5 billion credit card customers spent $4.2 trillion last year.
| Company | Date | Offer price | Current price | Deal size |
|---|---|---|---|---|
May 24 | $39.00 | $86.64 | $2.39 billion | |
Oct. 23 | $21.00 | $23.80 | $1.38 billion | |
Oct. 12 | $15.00 | $20.09 | $1.12 billion | |
Sept. 20 | $15.00 | $13.32 | $1.06 billion | |
Feb. 23 | $21.00 | $37.57 | $870 million | |
Source: IPOhome.com |
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