Plastic Is Fantastic

Plastic is the new green to consumers trying to survive the economic downturn. As people shift from cash to cards, credit card companies like Visa and MasterCard are benefitting -- at least until the consumer slowdown catches up to them.

In the last two days, Visa (nyse: V - news - people ) and MasterCard (nyse: MA - news - people ) have posted earnings that beat analysts' expectations. The companies are benefiting from increasing unemployment and falling wages that have forced consumers to stick to tight budgets and rely on credit and debit cards. But, the two companies expect the economic slowdown to catch up with them in 2009 as consumer spending stays weak.
Visa lowered its outlook for annual revenue growth to a high single-digit gain from a previous estimate in the range of 11.0% to 15.0% growth. MasterCard said 2009 revenue growth will not meet its objective of 12.0% to 15.0%, due to the slowdown in consumer spending worldwide.

"With consumers under considerable pressure from the contraction of credit, net worth and jobs, we suspect sentiment around MasterCard will remain very weak until consumer spending stabilizes," Bruce Harting, an analyst at Barclays Capital, wrote in a research note.

According to a report by Fitch ratings service, credit card delinquencies are reaching record highs. Payments at least 60 days late have increased 0.5%, to 3.75%, in January, the highest rate since 1997.

But the number of transactions the credit card companies are processing has increased as consumers rely more heavily on debit cards as a means of controlling their spending. MasterCard reported a 6.0% increase, to 5.5 billion, for transactions in the recent quarter, while Visa's transactions jumped 13.0%, to 14.5 billion.

Despite the less-than-sunny outlook from both companies, shares jumped on the news that they both beat expectations. Shares of MasterCard were up 13.8%, or $19.34, to $159.49, on Thursday afternoon, while Visa gained 9.8%, or $4.84, to $53.97.


Source: http://www.forbes.com/2009/