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Posted

I thought something like this would happen,

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2665.0

 

I usually bet on big business against big government, but this is big business vs big business. Retailers like WMT dont want to pay 2% on transactions when their margins are razor thin and they provide more value. They would prefer to pass the savings on to the customers so that they have more left over to buy more. I dont know what a fair percentage is for credit card and debit cards but feel it will go down overtime. Once it gets to where it needs to be Visa and Mastercard will have great moats. They should be regulated utilities basically inmo.

Posted

I thought something like this would happen,

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2665.0

 

I usually bet on big business against big government, but this is big business vs big business. Retailers like WMT dont want to pay 2% on transactions when their margins are razor thin and they provide more value. They would prefer to pass the savings on to the customers so that they have more left over to buy more. I dont know what a fair percentage is for credit card and debit cards but feel it will go down overtime. Once it gets to where it needs to be Visa and Mastercard will have great moats. They should be regulated utilities basically inmo.

 

As long as the pie is still growing, either the price cap or disputes between big retailers will be offset. There will be always ways to explore new revenue opportunities. When you own the only well in the village, even there is a price cap on the water, there will be plenty ways to make more money.

 

Sooner or later the current payment model will be challenged, and that should worry MA and V.

Posted

I agree they have a moat only government can touch  :D.

 

My issue is they are overpriced and we need those earnings. They will take a haircut which will push down the E on that PE ratio. It will be made up as the pie expands but I dont want to hold a MSFT or WalMart which is overpriced and does nothing for a decade while it adjusts.

Posted

One item to think about, in my mind, on V and MA is that the companies are needed by the governments in emerging market countries because electronic transactions create records which stop the underreporting of taxes, sales and otherwise...so many EM governments are actually very happy to allow these guys to run at large margins (likely until penetration rates are extremely high, then they will get whacked like in the U.S.). Very big cash flow generation will come from these markets for these guys going forward and the market is probably overly focused on their U.S. issues...

Posted

I love this proposal by the Fed.  We'll see if it actually goes through, though.  The bank lobbyists are a powerful bunch.

 

So now people are finally thinking about the regulatory risk.  I'm still not so sure that we are considering the technological risk or other attacks on the moat from potential competitors.  Are we so sure that Visa and MasterCard will be the ones building out the electronic payments systems abroad? 

 

I'll tell you though, if we get a continued drop in their share price, I might start to do some real research on V and MA. 

Posted

This bloomberg article says V derives 20% of its revenue from US debit and that the average debit interchange fee is $0.44.  If the fee drops to $0.12, that means overall V will suffer a one-time revenue drop of ~15% (0.8+.2*.12/.44).  That's inline with its recent stock price drop.  Am I interpreting this right?

 

http://www.bloomberg.com/news/2010-12-16/federal-reserve-moves-to-reduce-debit-card-fees-visa-mastercard-decline.html

Posted

interchange fee are paid by the banks if i am not mistaken. this doesn't have direct impact on visa or mastercard

 

not indirect impact .... well is hard to say

Posted

This bloomberg article says V derives 20% of its revenue from US debit

 

That is correct but debit involves other things besides the transaction fees alone. Also, the banks will take the bigger bite on this.

 

Although the fed proposal is done with good intentions ( atleast in appearance ), doesnt look like this will work out that way in practice. Either the debit cards will become less popular, or will have other fees attached to them or other forms like prepaid cards will come into vogue.

Posted

In MA/V case, they are like toll booths don't think there is an alternative for this in the near term. Paypal is kind of an alternative that has global presence. Google tried to displace paypal ( google checkout )and is not working out well.

 

I have never used a debit card despite its popularity. I don't like prepaid but always use credit. I get rewards from my card company. Looking at the rail traffic, looks like the number of transactions will be higher this year compared to last. US also had a mini baby boom in 2005-2008 before the recession which will only increase demand as the parents are now into buying things for kids.

 

In addition, the big growth is coming from Asia where transactions are up close to 20% year over year.

Posted

 

Sorry for the delay....I believe I started the Visa thread awile back.

I think I  might have a better perspective from a gut check point of view than most

as I bought a very large chunk of Visa when it dropped from the $90's to the low 70's. Our holdings

went up immediately to the high 70's for a very quick return. However, we did not take the profit and watched it drop to $64. Not only was this tough on the pocket book it certainly caused me to double down on my homework....believe it or not I was in Ireland for the drop....It was a depression there!!!!and still is.

 

All of the points the board members have made are valid.

The one that sticks out the most is the government intervention (lost sleep). The problem simply is their U.S business and the governments intention on lower fees. However, i tried to discount this...I felt I was bashing my head against the wall.

second.

foreign governments do not like the information that Visa has on their consumers, habits and economies..(hence no China business)...and a strong risk of intervention....If the U.S can do it to their own company why can't brazil do it? Canada is looking at it right now.

third

competition.

pay pal and the like are slowly moving in...other comps are brand cards...I use my Starbucks card only when I pay up at their tills...this is trend that will continue...that being said....this will help in their monopoly case in Canada and likley other countries.

 

My experience....we sold around $80...happy to be out. It was and is the best business in the wolrd but everyone is taking shots at it. Government is the risk....and I can't quantify what they will do...

There is likely more upside in the smaller companies that they will eventually buy out...as for MA they are in the same boat...that being said at some point it may be worth the risk...we are not buying or thinking about it.

 

Dazel.

  • 3 years later...
Posted

V and MC are amazing stocks.  Though never appearing to be values, they've compounded for their shareholders like nobody's business.  The MA ipo in 2005 was something I could never get my head around.  Didn't buy at $50 in July 2005 and have regretted ever since.  The metrics just never made it look cheap.

Posted

V and MC are amazing stocks.  Though never appearing to be values, they've compounded for their shareholders like nobody's business.  The MA ipo in 2005 was something I could never get my head around.  Didn't buy at $50 in July 2005 and have regretted ever since.  The metrics just never made it look cheap.

 

Sadly I am guilty of the same error. Your post made me think of this quote:

 

"The term "value investing" is widely used to imply the purchase of stocks having

attributes such as a low ratio of price to book value, a low price-earnings ratio, or a

high dividend yield. Unfortunately, such characteristics...are far from determinative as

to whether an investor is indeed buying something for what it is worth and is therefore

truly operating on the principle of obtaining value in his investments.

Correspondingly, opposite characteristics - a high ratio of price to book value, a high

price-earnings ratio, and a low dividend yield - are in no way inconsistent with a

"value" purchase.

Posted

V and MC are amazing stocks.  Though never appearing to be values, they've compounded for their shareholders like nobody's business.  The MA ipo in 2005 was something I could never get my head around.  Didn't buy at $50 in July 2005 and have regretted ever since.  The metrics just never made it look cheap.

 

Sadly I am guilty of the same error. Your post made me think of this quote:

 

"The term "value investing" is widely used to imply the purchase of stocks having

attributes such as a low ratio of price to book value, a low price-earnings ratio, or a

high dividend yield. Unfortunately, such characteristics...are far from determinative as

to whether an investor is indeed buying something for what it is worth and is therefore

truly operating on the principle of obtaining value in his investments.

Correspondingly, opposite characteristics - a high ratio of price to book value, a high

price-earnings ratio, and a low dividend yield - are in no way inconsistent with a

"value" purchase.

 

This is probably my single best investment.  I purchased right after the IPO.  The value metrics weren't there.  I remember looking at their S-1 and thinking "a company that's essentially a duopoly shouldn't be losing money".  I purchased and considered MA a spin-off, and it acted like one.  The company started to earn money and grow like a weed once the banks didn't control it anymore.

 

I stupidly didn't buy Visa when it IPO'ed.  I don't know why, but buying both was the smart thing to do.

 

Might have to turn in my value investing card after this admission, but I still own it.  Might not be cheap right now, but I'm confident in 5-10 years the company will be bigger and better than where they are now.  This is a buy, hold, and compound for me.

Posted

If I recall correctly, both V and MA were trading at 12-13x FCF multiples ex-cash in late 2010/early 2011.  Of course Durbin was threatening, but they were being valued for close to zero future growth at the time.

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