Visa vs Mastercard - Oppenheimer - April 2012

EQUITY RESEARCH

INDUSTRY UPDATE WITHCHANGES

Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229

Glenn Greene, CFA312 [email protected]

Brent [email protected]

Oppenheimer & Co. Inc. does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm mayhave a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investmentdecision. See "Important Disclosures and Certifications" section at the end ofthis report for important disclosures, including potential conflicts of interest. See"Price Target Calculation" and "Key Risks to Price Target" sections at the end ofthis report, where applicable.

April 4, 2012

CONSUMER & BUSINESS SERVICES/BUSINESSSERVICES

V and MA PreviewRaising Estimates and Price Targets; ValuationOverhangs WaningSUMMARYIn consideration of strong quarterly volume trends we are raising our estimates forV and MA. We believe fundamentals are benefiting from solid US retail sales trendsand continued x-border volume strength. We raise our FY12/FY13 estimates for bothcompanies, and expect both to affirm their respective forward outlooks. Given ourfavorable fundamental view as well as a waning of extraneous valuation overhangs(Durbin, Merchant Litigation) we are raising our PTs for V to $140 (from $126) and forMA to $475 (from $400). Shares remain attractive, in our view, although we expectshare appreciation to largely track earnings growth from here with limited furthermultiple expansion.

KEY POINTS

■ We anticipate solid quarters for both V (2Q:FY12) and MA (1Q:FY12) as volumetrends (cross-border volume, purchase volume, processed transactions) remainhealthy. We expect V to affirm its FY12 outlook for low double-digit revenue growthand high-teens EPS growth, despite Durbin-related headwinds in 2H:FY12.Similarly, we anticipate MA will affirm its two-year ('12-'13) average revenue andEPS growth targets of 12-14% and 20%, respectively.

■ Reflecting stronger volume trends, we raise our FY12E EPS for V to $6.08 from$6.05 (vs. Street of $5.97) and our FY13E EPS $0.10 to $7.09 (17% growth). ForMA, we raise our FY12E EPS to $22.01 from $21.75 (vs. Street's $22.00) and ourFY13E EPS to $25.86 (from $25.50). V's FY12 guidance calls for low double-digitrevenue growth and high-teens EPS growth, while MA anticipates 20% constantcurrency EPS CAGR over the next two years.

■ V now trades at a ~4% discount to MA. As V bears the brunt of the Durbin impactin coming quarters, we expect modestly faster revenue growth for MA (despitevery difficult comps) over the next 12 months. Also, with improved clarity regardingthe merchant case, MA's potential exposure appears very manageable (likely wasmost significant risk factor). Accordingly, we wouldn't preclude MA sustaining itsmodest valuation premium near term. Longer term, after V anniversaries Durbinand growth accelerates, we anticipate V could regain its valuation premium.

■ V and MA outperformed the market during 1Q:CY12, up 16% and 13%,respectively (vs. 12% for the S&P500). After their strong recent performance, Vand MA trade at ~16x and ~16.5x CY13E EPS, respectively, which we think isreasonable considering likely mid- to high-teens EPS growth over intermediateterm. Given our favorable fundamental view as well as a waning of extraneousvaluation overhangs, we maintain Outperform ratings and raise our PTs for V to$140 from $126 and for MA to $475 from $400.

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Company Ticker Prior Curr Prior Curr FYE Prior Current Prior Current Prior Current

Visa $126 140 O O Sept $4.99 NC $6.05 $6.08 $6.99 $7.09

MasterCard MA $400 475 O O Dec $18.70 NC $21.75 $22.01 $25.50 $25.86

V

Companies with Updates: Summary12-18 Month

Price Target Rating

Annual Earnings per Share

2011 2012E 2013E

Source: Company reports and Oppenheimer & Co. Inc. Note: All figures in U.S. dollars unless otherwise notedNC, No Change. O, Outperform; P, Perform; U, Underperform

Affirm Outperform Ratings and Raise Price TargetsAhead of 1Q:CY12 earnings, we affirm our Outperform ratings on Visa and MasterCard as intra-quartertrends and believe the fundamental outlooks for both remain encouraging. We expect both companies toaffirm their respective guidance. V and MA posted stellar share performances during CY11 with sharesup 44% and 66% (vs. flat performance for the S&P 500), respectively, and have built on that with astrong start to CY12 (up ~17% and ~14%, respectively vs. S&P500 up 11%). Both stocks have benefitedfrom significant P/E multiple expansion as the overhangs from the Durbin legislation and the Merchantlitigation case subside. In our view, the stocks are responding to solid near-term and long-term growthoutlooks while extraneous valuation ceilings have been removed. After their sharp recent appreciation,V and MA now trade at ~16x and ~17x our CY13 EPS estimates, respectively—very reasonable, in ourview, considering likely mid- to high-teens EPS intermediate term growth for each. We raise our estimatesfor both V and MA to reflect stronger cross-border and domestic volume growth than we previouslyanticipated. We raise our price target for V to $140 (from $126), and for MA to $475 (from $400).

Merchant Litigation Risk Appears Less Onerous Than Originally AnticipatedAs the Durbin amendment was a primary investor focus during CY10-11, the looming Merchant litigationcase was front and center in investor minds heading into CY12. Recall this lawsuit dates before either V/MA came public, and is scheduled for trial in September 2012. That said, we anticipate the parties cansettle prior to the trial date. MA recorded a $770M pre-tax reserve with its 4Q11 earnings release (implies$6.4B global settlement) for its potential exposure to the merchant litigation case. We suspect consensusfor a global settlement was in the range of $10-15B.

As it relates to a potential monetary settlement, Visa members (not Visa Inc.) would be responsible fortwo-thirds while MasterCard and its members would be responsible for the remaining third. Upon its IPO,Visa established a retrospective responsibility plan which largely precludes V shareholders from litigationrisk; Visa members bear responsibility. Over time, V has funded a litigation escrow account (the first line ofdefense) which now approximates $4.4B with a corresponding reduction in Class B as-converted shares.Currently, there are approximately 105M as-converted Class B shares, or the equivalent of ~$12.5B ofvalue at current prices. Accordingly, approximately $17B of funding is available to cover any monetaryliability accruing to the Visa membership, which appears more than sufficient.

Raising Estimates for Cross-Border and US Volume StrengthIntra-quarter Trends:

MasterCard: MA's volume trends for Jan/Feb (see Exhibit 1 below), normalized for the extra day inFebruary (leap year), were encouraging and comfortably ahead of our prior expectations. Also, weestimate the extra day in February provides a ~1.7% tailwind for the first two months (~1% for the fullquarter) of the quarter. Most notably, US purchase volume growth for January/February was 15.7%(adjusted for extra day) compared to our prior growth estimate of 8.6%. We suspect solid US retail salesand large issuer wins related to Durbin are driving results. Also, cross-border volume growth was a strong~18.7% on an adjusted basis vs. our prior estimate of 16%. Cross-border volumes are the highest margintransactions for V and MA, which is encouraging for near-term EPS growth.

Consumer Discretionary / CONSUMER & BUSINESS SERVICES

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Exhibit 1: MA Volume Trends

MA Intra Quarter VolumesSame Day Opco Est.

12/10 3/11 6/11 9/11 12/11 Jan Jan/Feb J/F 1Q:12Processed Transactions 6.3% 11.1% 17.4% 20.5% 23.2% 25.0% 27.7% 26.0% 26.5%

US Purchase Volume (~37% of total) 3.4% 7.2% 11.3% 13.2% 11.7% 13.0% 15.7% 14.0% 13.9%

Constant FX Cross-border Volume 18.7% 18.5% 19.3% 19.3% 17.5% 17.0% 18.7% 17.0% 17.5%

ReportedTrends by Qtr End

Source: Company reports, Oppenheimer & Co. Inc.

Reflecting the stronger than anticipated intra-quarter volume trends, we raise our 1QFY12 EPS estimatefor MA $0.07 to $5.24. We now anticipate 1Q:FY12 purchase volume growth of 14.8% Y/Y to $626B(domestic +14% Y/Y to ~$237B, international +15% Y/Y to $389B) and 70bp of Y/Y margin compressionto 55%. For FY12, we raise our EPS estimate to $22.01 (up ~18% Y/Y) from $21.75 (vs. Street's $22.00)driven by ~12% revenue growth (~12% volume growth) and 60bp of margin expansion to 52.5%. Also, weraise our FY13 EPS estimate to $25.86 (17.5% Y/Y) driven by 11% revenue growth to $8.34B and 50bpsof margin expansion to 53.0%. We anticipate MA will affirm its 2-year ('12-'13) compounded constantcurrency EPS growth objective of 20% when it reports results in May.

Visa: V's volume trends thru February are also encouraging (see Exhibit 2 below). On a normalized(adjusted for extra day) basis, cross-border volume grew 16% Y/Y in February (20% reported growthincluding extra day), US payments volume grew 6% Y/Y (11% Credit, 4% Debit, and 10% reportedgrowth), and Processed Transactions grew 8% Y/Y (11% reported) globally. V's intra-quarter trendsimply healthy results for the quarter; although less upside compared to our prior estimates relative toMasterCard.

Exhibit 2: V Volume Trends

Visa Quarterly Trends Same Day Opco Est.

12/10 3/11 6/11 9/11 12/11 Jan '12 Feb '12 Feb '12 3/12EProcessed Transactions 15% 13% 11% 9% 8% 9% 11% 8% 9%

US Purchase Volume 13% 12% 11% 9% 7% 7% 10% 6% 8% Credit (~24% of volume) 7% 9% 10% 10% 10% 10% 15% 11% Debit (~29% of volume) 16% 13% 11% 8% 5% 4% 7% 4%

Constant FX Cross-border Volume 15% 13% 14% 15% 13% 15% 20% 16% 17%

Source: company reports and Oppenheimer estimates

Trends by Quarter EndBy Month

Reflecting V's volume trends through February, we raise our 2Q:FY12 EPS estimate to $1.54 from $1.50(vs. Street's $1.49), which implies 25% Y/Y EPS growth. We also raise our FY12 EPS estimate to $6.08(up 22%), from $6.05, driven by payments volume growth of 10% Y/Y to $4,020B (domestic up 7% Y/Yto $2.15B, international +13% Y/Y to $1.87B), 60 basis points of Y/Y margin expansion to 60%, and ~4%fewer shares outstanding. We raise our FY12 revenue assumption by approximately $75M to $10.2B(11% Y/Y growth) which reflects $58M higher cross border revenue, and ~$21M higher Data processingrevenue. Recall FY12 guidance calls for low double-digit revenue growth and high-teens EPS growth.We also raise our FY13 EPS estimate $0.10 to $7.09, which reflects ~10.6% revenue growth to $11.29Band 100bps of margin expansion to 61%.


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Exhibit 3: MasterCard Estimates (vs. Street)

OpCo Y/Y Chg Street Y/Y Chg OpCo Y/Y Chg Street Y/Y ChgRevenue 7,511$ 11.9% 7,546$ 12.4% 8,343$ 11.1% 8,469$ 12.2%EPS 22.01$ 17.7% 22.00$ 17.6% 25.86$ 17.5% 25.81$ 17.3%

FY13EFY12E

Source: FactSet, Oppenheimer & Co. Inc.; note Y/Y changes reflect OPCO vs. OPCO estimates

Exhibit 4: Visa Estimates (vs. Street)

OpCo Y/Y Chg Street Y/Y Chg OpCo Y/Y Chg Street Y/Y ChgRevenue 10,210$ 11.1% 10,175$ 11.2% 11,289$ 10.6% 11,331$ 11.4%EPS 6.08$ 21.8% 5.97$ 21.3% 7.09$ 16.6% 7.00$ 17.3%

FY13EFY12E

Source: FactSet, Oppenheimer & Co. Inc.; note Y/Y changes reflect OPCO vs. OPCO estimates

Macro Indicators Remain Solid, Especially in the US:

Below we discuss some of the primary variables that we believe influence purchase volumes.

US Retail Sales Solid Thru February: Despite recent market volatility/macro concerns, US retail sales inthe first two months of 1Q12 were surprisingly strong and accelerated each month from a Y/Y perspective(following 4 months of deceleration Y/Y). Unadjusted US retail sales (ex-auto) closely track US purchasevolume trends as reported by Visa/MasterCard (see Exhibit 5). Thus far, the metric is up 8.0% Y/Yin 1Q:CY12 (vs. 6.5% in 1Q:CY11, 8.0% in 2Q:CY11, 8.1% in 3Q:CY11, and 6.4% in 4Q:CY11) andcompares to our revised US purchase volume estimates of 8% and 14% for Visa and MasterCard,respectively. Y/Y retail sales accelerated throughout the quarter as unadjusted retail sales rose 6.0% inJanuary and 10.0% in February (following 6.9% Y/Y in October, 6.7% Y/Y in November, and 5.8% Y/Yin December). Recall ~52% of Visa's and ~36% of MasterCard's purchase volume is generated in theUS. We note that elevated gas prices (discussed later in the report) have buoyed retail sales in recentquarters: however, Y/Y comparisons are becoming increasingly difficult.

Exhibit 5: Y/Y Change V/MA US Purchase Volume vs. US Retail Sales (ex-Auto)

Y/Y Change US Retail Sales (ex-Auto) vs. Visa/MasterCard US Purchase Volume

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

3/07

9/07

3/08

9/08 3/0

99/0

93/1

09/1

03/1

19/1

13/1

2E

Visa US Purchase Volume

MasterCard US Purchase Volume

Unadjusted US Retail Sales and Food (ex-Auto)

Source: US Census Bureau, Company reports, Oppenheimer & Co. Inc.

Cross-border/International Travel: After moderating in Oct/Nov, Y/Y airline traffic growth was solid tostart the year, growing 5.5% in January (vs. 6.0% in 1Q:CY11, 10.1% in 2Q:CY11, 6.1% in 3Q:CY11,and 5.5% in 4Q:CY11), according to the International Air Transport Association (IATA). This improvementin January may reflect gradual improvement in the macro environment and appears consistent with V/MA's solid intra-quarter cross border volume trends. We suspect gradual improvement in the macro


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environment could serve as a tailwind for V/MA's cross-border revenue, which represents ~25% ofVisa/MasterCard's gross revenue and likely represents the highest revenue/margin transaction for eachcompany. Historically, global airline traffic has correlated with cross-border volume growth as outlinedin Exhibit 6.

For Visa, we expect international transaction revenue to grow ~22% Y/Y to $760M on 16.5% volumegrowth (~4.5pt of improved yield Y/Y) in 2Q:FY12 (end March). We estimate MasterCard's gross cross-border revenue to grow ~12% to $516M in 1Q:CY12 on 17.5% Y/Y constant currency volume growth,and a likely conservative 5% Y/Y yield decline.

Exhibit 6: Global International Airline Traffic Y/Y Change vs. Est. Constant Currency Cross-borderVolume Growth

IATA International Traffic and Cross Border Volume

(15%)(10%)(5%)

0%5%

10%15%20%25%30%35%

3/08

6/08

9/08

12/08 3/0

96/0

99/0

912

/09 3/10

6/10

9/10

12/10 3/1

16/1

19/1

112

/113/1

2E

IATA International TrafficVisa Cross-border est. VolumeMasterCard Cross-border est. Volume

Source: ATA, Company reports, Oppenheimer & Co. Inc.

Gas Prices: While gasoline prices are down from the May 2011 highs, gas prices have risen the past nineweeks and should provide a very modest tailwind for Visa and MasterCard's purchase volume growthin 1Q:CY12. In aggregate, we estimate US gas purchases account for ~8% and ~6% of US purchasevolume for Visa and MasterCard, respectively. As we outline in Exhibit 7, average gas prices to date inthe March quarter are up 8% Y/Y to ~$3.50 per gallon (vs. +35% Y/Y to $3.73 per gallon in 2Q:CY11,+34% Y/Y to $3.59 in 3Q:CY11, and +17% to $3.32 in 4Q:CY11), according to the Energy InformationAdministration (EIA). Similarly, retail sales at US gas stations grew 17.7% Y/Y in 2011 (up 11% YTD thruFebruary), according to the US Census Bureau. As we started to see this quarter, tougher comparisons inCY12 will likely diminish purchase volume tailwinds. We estimate rising gas prices in 1Q:CY12 provideda nominal purchase volume growth tailwind for Visa and MasterCard of ~30bps and ~20bps, respectively(~60bps and ~45bps tailwind to US purchase volume growth, respectively) during the quarter.


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Exhibit 7: Average Price per Gallon of Gasoline

$2.33

$2.99$2.84

$2.95$3.09

$3.74$3.81

$2.21

$1.87

$2.31$2.51$2.56

$2.77$2.68$2.84

$3.25

$3.73$3.59

$3.32$3.50

$2.68

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

1Q:072Q:073Q:074Q:071Q:082Q:083Q:084Q:081Q:092Q:093Q:094Q:091Q:102Q:103Q:104Q:101Q:112Q:113Q:114Q:111Q:12to

date

Pric

e pe

r Gal

lon

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Y/Y

Cha

nge

Quarterly Average Gasoline Price Y/Y Change

Source: US Department of Energy, Oppenheimer & Co. Inc.

International Growth: We expect international growth to continue to outpace US growth givensignificantly lower levels of card usage overseas. That said, intra-quarter trends reflect strongerUS purchase volumes than we originally anticipated. MasterCard has greater relative exposure tointernational markets; we estimate that international purchase volume will comprise ~62% and ~46%of MasterCard and Visa's total purchase volume, respectively, during FY12. For perspective, Europerepresents approximately 44% of MA's International volume, or ~27% of total purchase volume, whichcould represent a modest risk during CY12.

For Visa, we anticipate 14% Y/Y international purchase volume growth to $438B (vs. 8% domestic growthto $513B) in the March quarter; for FY12, we estimate international volume growth of 12.6% Y/Y to$1.87T (vs. 7% Y/Y domestic growth to $2.1T). For FY13, we estimate international purchase volumegrowth of 13% and domestic purchase volume growth acceleration to 8% as the company anniversariesDurbin-related headwinds from FY12. As Visa does not own/consolidate Visa Europe, the company hasvery limited core Europe exposure. Such limited exposure could provide an advantage (relative to MA)if Europe deteriorates further and experiences sluggish volume trends (that said, Europe volumes haveheld up well in recent quarters for MA). We note that Visa's Central Europe/Middle East Africa (CEMA)volume represents <4% of V's total purchase volume.

For MasterCard, we anticipate 15.4% Y/Y international purchase volume growth to $389B (vs. 13.9%growth in domestic purchase volume to $237B) in the March quarter. For CY12, we estimate internationalpurchase volume growth of 12.4% Y/Y to $1.72T (vs. 11.4% domestic growth to $1.004T). The moderatingvolume growth in FY12 largely reflects MA's European exposure (~27% of total purchase volume). Weproject European volume growth deceleration to 6% (vs. 17% in CY11) in CY12 which considers therecent uncertainty in Europe as well as the Y/Y weakness in the euro.

As shown in Exhibit 8 below, Eurozone retail sales continue to contract modestly. We note that MA'sEuropean volume held up well in 4Q (~13% C/C volume growth) despite apparent macro headwinds anddecelerating volume growth from AXP (4% CC growth in EMEA region). We cannot preclude elevatedvolatility in the region during CY12. Accordingly, we are mindful of potential headwinds throughout CY12,but are also cognizant of MA's strong European performance in the last few quarters (~13% local currencyvolume growth during CY11) despite a backdrop of contracting retail sales. Also, we estimate the average1Q euro rate implies euro depreciation of 4.3% Y/Y for the quarter, and at current spot rates eurodepreciation would imply ~7% headwind in 2Q:CY12.


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Exhibit 8: EU17/27 Quarterly Retail Sales Y/Y Trends

European Retail Sales

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1Q 10 2Q 10 3Q 10 4Q 10 1Q11 2Q11 3Q11 4Q 11 1Q:12

EU R

etai

l Sal

es %

EU 17 Quarterly Retail Average

EU27 Quarterly Retail Average

Source: Eurostat and company reports (1Q:12 Estimates Updated through February)


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Exhibit 9: Visa Purchase Volume Estimates

12/10 3/11 6/11 9/11 12/11 3/12E 6/12E 9/12EFY10 1QFY11 2QFY11 3QFY11 4QFY11 FY11 1QFY122QFY12E3QFY12E4QFY12EFY12E FY13E

Purchase Volume by Region ($Bs) Asia Pacific 797$ 239$ 230$ 246$ 271$ 986$ 275$ 261$ 282$ 298$ 1,116$ 1,253$ Asia Pacific Y/Y (Nominal) 21.5% 21.9% 18.9% 24.9% 28.4% 23.7% 15.1% 13.8% 14.5% 10.1% 13.3% 12.2% Asia Pacific Y/Y (Constant Currency) 15.0% 11.5% 13.7% 17.5% Asia Pacific Q/Q 13.3% -4.0% 7.2% 10.2% 1.5% -5.0% 7.9% 5.9%

Canada 190$ 53$ 48$ 55$ 55$ 211$ 57$ 51$ 57$ 59$ 225$ 244$ Canada Y/Y (Nominal) 22.6% 12.8% 9.1% 10.0% 12.2% 11.1% 7.5% 6.4% 4.1% 7.7% 6.4% 8.6% Canada Y/Y (Constant Currency) 6.8% 7.0% 8.4% 7.7% Canada Q/Q 8.2% -9.4% 14.6% 0.0% 3.6% -10.4% 12.1% 3.5%

CEMEA 98$ 30$ 30$ 35$ 37$ 132$ 39$ 38$ 41$ 44$ 162$ 197$ CEMEA Y/Y (Nominal) 25.6% 30.4% 30.4% 40.0% 37.0% 34.7% 30.0% 27.5% 17.0% 18.0% 22.6% 22.0% CEMEA Y/Y (Constant Currency) 32.2% 31.2% 36.7% 36.1% CEMEA Q/Q 11.1% 0.0% 16.7% 5.7% 5.4% -1.9% 7.1% 6.6%

LAC 253$ 82$ 77$ 86$ 90$ 335$ 94$ 88$ 93$ 97$ 372$ 424$ LAC Y/Y (Nominal) 31.1% 28.1% 32.8% 39.2% 30.4% 32.5% 14.6% 13.8% 7.2% 8.3% 10.8% 14.0% LAC Y/Y (Constant Currency) 26.7% 26.1% 28.7% 23.8% LAC Q/Q 18.8% -6.1% 12.1% 4.3% 4.4% -6.8% 5.6% 5.3%

International 1,338$ 404$ 385$ 422$ 453$ 1,664$ 465$ 438$ 472$ 499$ 1,874$ 2,118$ Int'l Y/Y (Nominal) 23.7% 22.4% 20.9% 26.4% 27.2% 24.3% 15.1% 13.9% 11.9% 10.1% 12.6% 13.0% Int'l Q/Q 13.5% -4.8% 9.8% 7.3% 2.6% -5.8% 7.9% 5.6%

US 1,807$ 493$ 477$ 518$ 516$ 2,004$ 529$ 513$ 552$ 551$ 2,146$ 2,315$ US Y/Y 11.8% 12.6% 11.6% 10.5% 9.1% 10.9% 7.3% 7.7% 6.5% 6.8% 7.1% 7.9% US Q/Q 4.2% -3.3% 8.8% -0.5% 2.5% -3.0% 7.6% -0.1%

Total Visa Inc. $ Payments Volume 3,145$ 897$ 861$ 941$ 969$ 3,668$ 994$ 951$ 1,024$ 1,050$ 4,020$ 4,432$ Y/Y Chg (Nominal) 16.5% 16.8% 15.6% 17.1% 16.9% 16.6% 10.8% 10.5% 8.9% 8.4% 9.6% 10.3%

Source: company reports and Oppenheimer & Co. Inc. estimates

Exhibit 10: MasterCard Purchase Volume Estimates

FY10 1Q:11 2Q:11 3Q:11 4Q:11 FY11 1Q:12E 2Q:12E 3Q:12E 4Q:12E FY12E FY13EPurchase Volume by Region (in billions) APMEA 411$ 120$ 132$ 144$ 152$ 548$ 150$ 163$ 172$ 181$ 666$ 781$ APMEA Y/Y (nominal) 25.9% 29.9% 40.4% 38.5% 25.6% 33.2% 25.2% 23.2% 19.5% 19.4% 21.6% 17.3% APMEA Y/Y (local) 21.6% 27.2% 27.2% 23.5% 0.0% 0.0% 0.0% 0.0% APMEA Q/Q -1.2% 10.5% 9.1% 5.6% -1.6% 8.7% 5.9% 5.4%

Canada 95$ 24$ 28$ 28$ 29$ 109$ 26$ 29$ 30$ 31$ 115$ 122$ Canada Y/Y (nominal) 14.5% 14.3% 16.7% 16.7% 11.5% 14.7% 6.6% 3.2% 6.0% 6.0% 5.4% 6.0% Canada Y/Y (local) 7.1% 10.3% 10.7% 9.3% 0.0% 0.0% 0.0% 0.0% Canada Q/Q -7.7% 16.7% 0.0% 3.6% -11.8% 13.0% 2.6% 3.6%

Europe 604$ 158$ 181$ 185$ 184$ 708$ 171$ 186$ 191$ 200$ 748$ 800$ Europe Y/Y (nominal) 11.8% 13.3% 26.6% 20.5% 9.5% 17.2% 8.7% 2.8% 3.2% 8.5% 5.7% 7.0% Europe Y/Y (local) 12.7% 14.1% 13.7% 12.6% 0.0% 0.0% 0.0% Europe Q/Q -6.3% 14.9% 2.2% -0.5% -7.0% 8.7% 2.6% 4.6%

Latin America 126$ 36$ 40$ 43$ 45$ 164$ 42$ 46$ 48$ 53$ 189$ 218$ Latin America Y/Y (nominal) 28.6% 33.3% 37.9% 34.4% 18.4% 30.2% 18.0% 15.4% 11.1% 17.3% 15.3% 15.3% Latin America Y/Y (local) 25.0% 28.0% 29.1% 24.8% Latin America Q/Q -5.3% 11.1% 7.5% 4.7% -5.6% 8.7% 3.5% 10.5%

International 1,236$ 337$ 381$ 400$ 410$ 1,528$ 389$ 424$ 440$ 465$ 1,718$ 1,921$ Int'l Y/Y (nominal) 17.9% 20.8% 31.4% 27.6% 16.1% 23.7% 15.4% 11.2% 10.1% 13.3% 12.4% 11.8% Int'l Q/Q -4.5% 13.1% 5.0% 2.5% -5.2% 9.0% 4.0% 5.5% 63.1%

US 813$ 208$ 227$ 227$ 239$ 901$ 237$ 251$ 252$ 264$ 1,004$ 1,079$ US Y/Y 1.0% 7.2% 11.3% 13.2% 11.7% 10.9% 13.9% 10.7% 11.0% 10.3% 11.4% 7.5% US Q/Q -2.8% 9.1% 0.0% 5.3% -0.9% 6.1% 0.3% 4.6%

Total Purchase Volume ($ in B) 2,048$ 545$ 608$ 627$ 649$ 2,429$ 626$ 675$ 693$ 728$ 2,721$ 3,000$ Y/Y Chg (nominal) 10.6% 15.2% 23.1% 22.0% 14.5% 18.6% 14.8% 11.0% 10.5% 12.2% 12.0% 10.2%

Source: company reports and Oppenheimer & Co. Inc. estimates


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Overview of Company OutlooksOur estimates for both V and MA are directionally consistent with company guidance.

Visa: We anticipate V will affirm FY12 guidance which calls for low double-digit net revenue growth andhigh-teens EPS growth. The anticipated revenue growth in FY12 considers Durbin-related headwinds,price concessions to certain issuers and increased incentives toward select merchants. That said,management believes that 2H:FY12 and 1H:FY13 will bear the brunt of the regulatory impact and expectsrevenue growth to gain momentum in 2H:FY13.

MA: We expect MA will reiterate its 2-year growth objectives (CY12-CY13) when it reports earnings inMay. Recall that MA anticipates average annual net revenue growth of 12-14%, operating margins inexcess of 50% (vs. 51.9% in FY11) and 20% EPS CAGR (all constant currency) in CY12 thru CY13. Inaddition, MA anticipates low to mid-teens annual revenue growth through 2015. This long-term revenueguidance is predicated on 10-12% market growth (6 pts from PCE growth, 4-6 pts from secular shift),with some benefit from strategic investments (e.g., mobile, e-commerce, prepaid, etc.) offset by 1 pt fromMA's business mix.

We expect revenue growth to moderate in CY12 toward the low teens (from ~21% growth in CY11) asMA anniversaries conversion wins, faces incremental FX headwinds based on current spot rates for theeuro and the real, by our estimate, and likely more subdued European volume growth as macro concernslinger.

ValuationFinalization of the US debit interchange/routing rules and clarity regarding potential Merchant litigationexposure removed significant overhangs on the shares and contributed to strong stock price performancefor both V and MA during 2H:CY11 and into 1Q:CY12, in our view. During 1Q:CY12, V and MA appreciated16% and ~13% respectively (vs. the S&P 500's ~12%). That said, the shares remain attractive, in ourview, although we expect share appreciation to largely track earnings growth from here with limited furthermultiple expansion. Visa trades at ~19x (or 16.3x our CY13 EPS estimate) our revised CY12 EPS estimateof $6.34—this compares to V's long-term average (NTM estimates) of ~20x. Similarly, MA trades at ~19.5x(or 16.7x our CY13 EPS estimate) our revised CY12 EPS estimate of $22.01 (vs. the long-term averageof ~17.4x).

V now trades at a ~4% discount to MA, well below the ~14% historical average premium Visa has enjoyedsince its IPO in March 2008. We attribute Visa's historical premium (see Exhibit 11 below) to its strongerglobal market share (unchanged), higher operating margins (unchanged), more conservative balancesheet (unchanged), greater exposure to the faster growing emerging markets (unchanged) and greaterexposure to the faster growing US debit market (headwind, i.e., Durbin). Also, V shareholders are notexposed to potential liability from the merchant litigation case whereas MA is liable for 12% of a globalsettlement. We expect V to bear the brunt of the Durbin impact over coming quarters (beginning in2Q:CY12), and accordingly, revenue growth should decelerate toward high-single- to low-double-digits.Similarly, as MA laps prior-year conversion wins, and generally strong 2011 volume trends, we expect topline growth deceleration toward the low teens. In short, we expect similar revenue growth from each overthe next four quarters (we expect modestly faster revenue growth for MA over next twelve months). Alsowith improved clarity regarding the merchant case, MA's potential exposure seems very manageable;perhaps the most notable factor impacting valuation discussion since beginning of year. Accordingly,we wouldn't preclude MA sustaining its modest valuation premium to V over the near term. That said,over the longer term, after V anniversaries Durbin headwinds and begins to see accelerating growth, weanticipate that V could regain its premium valuation.

We continue to believe long-term growth prospects for both V and MA remain very favorable. Given Visaand MasterCard's strong global brand, high profitability, strong pricing power and favorable long-termsecular tailwinds, we believe their shares deserve sizable valuation premiums to the market. In our view,MasterCard and Visa can deliver high-teens to 20% annual EPS growth over the intermediate term andgenerate very strong FCF. Our $140 PT for V is based on ~19x our revised CY13 EPS estimate, and our$475 PT for MA is based on ~18.5x our revised CY13 estimate.


10

Exhibit 11: Visa/MasterCard Valuation

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

Mar-08

Jun-0

8

Sep-08

Dec-08

Mar-09

Jun-0

9

Sep-09

Dec-09

Mar-10

Jun-1

0

Sep-10

Dec-10

Mar-11

Jun-1

1

Sep-11

Dec-11

Mar-12

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Visa P/E (L-Axis)MasterCard P/E (L-Axis)Visa Premium vs. MasterCard (R-Axis)

Source: FactSet, Oppenheimer & Co. Inc.

Durbin Implications Remain Unclear But Manageable; Appear Beneficial For MAWith the very recent implementation of interchange rate reductions (exclusivity provisions becomeeffective in April 2012), it remains unclear how onerous the Durbin impact will be. Early indications suggestthe Durbin amendment will not prove as onerous as feared and even presents an opportunity for MA togain share in the pin Debit market. Recall, MA recently won a large issuer PIN debit conversion as a resultof the network exclusivity provision (likely top 10 issuer), which already is driving incremental transactionsfor MA. Furthermore, the impact on debit volume as a result of issuer mitigation tactics remains hard todetermine/handicap. Recent volume trends seem to indicate a shift in volume toward credit from debit; notsurprising given more favorable economics for issuers. Both V and MA have provided forward guidancethat considers the implications of the Durbin legislation with Visa suggesting the brunt of the adverseimpact will be felt during 2H:FY12 into 1H:FY13, and anticipates growth acceleration in 2H:FY13, all elseequal. Recall that US debit represents ~20% of Visa's revenue and ~15% of MA's revenue.

Recall, Visa outlined its Network Participation fee for merchants that accept Visa branded cards inresponse to the Durbin amendment. The fee is based on merchant size (and number of locations);however, merchants will receive a price break on variable (transaction-related) fees for debit transactions.Also, certain larger merchants will likely be considered in V's incentive programs. In a nutshell, merchantsshould garner sizable economies of scale as more volume is routed through Visa's network. MasterCard,which has an estimated ~9% market share of US debit processing volume, plans a more deal-specificapproach to gain share in the US.


11

MasterCard Inc Quarterly Income Statement 4/2/2012

($ Millions; FY ends Dec)

FY10 1Q:11 2Q:11 3Q:11 4Q:11 FY11 1Q:12E 2Q:12E 3Q:12E 4Q:12E FY12E 1Q:13E 2Q:13E 3Q:13E 4Q:13E FY13E

Revenue

Domestic assessments 2,641 723 809 843 871 3,245 848 915 939 987 3,689 939 1,012 1,042 1,099 4,092

Cross-border volume fees 1,927 462 511 581 540 2,094 516 568 632 604 2,320 566 644 702 670 2,582

Transaction processing fees 2,198 590 630 693 682 2,595 674 699 758 766 2,897 757 785 851 853 3,246

Other revenues 791 203 251 265 281 1,000 255 284 300 317 1,156 281 312 330 349 1,272

Gross Revenue 7,558 1,978 2,200 2,382 2,374 8,934 2,293 2,466 2,628 2,674 10,062 2,543 2,753 2,924 2,971 11,192

Rebates and incentives (2,019) (477) (534) (564) (646) (2,221) (562) (607) (647) (735) (2,550) (631) (686) (731) (802) (2,850)

Total Net Revenue 5,539 1,501 1,666 1,818 1,728 6,713 1,731 1,860 1,982 1,939 7,511 1,913 2,068 2,193 2,169 8,343

Operating Expenses

Personnel 1,219 333 347 371 402 1,453 398 400 406 415 1,619 423 434 454 449 1,760

Professional fees 204 52 62 49 72 235 62 67 71 70 270 69 74 77 76 296

Telecommunications 57 15 16 18 18 67 17 19 20 19 75 19 21 22 22 83

Data processing 90 25 26 27 26 104 29 31 32 31 122 31 33 34 34 131

Travel and entertainment 58 19 22 19 24 84 21 22 24 23 90 23 25 24 24 96

Other 229 50 67 81 55 253 57 61 63 62 244 61 66 66 65 258

Total G&A 1,857 494 540 565 597 2,196 584 600 616 620 2,421 625 653 677 669 2,625

Advertising and marketing 782 129 193 200 319 841 140 212 218 351 921 163 246 248 401 1,058

Depreciation & amortization 148 42 49 51 52 194 55 55 57 57 225 57 59 62 61 239

Total Operating Expenses 2,787 665 782 816 968 3,231 780 867 891 1,029 3,567 845 958 986 1,132 3,922

Operating income (loss) 2,752 836 884 1,002 760 3,482 951 993 1,090 910 3,945 1,067 1,109 1,207 1,037 4,421

Other Income (Expense)

Interest expense (52) (10) (2) (7) (8) (27) (5) (5) (5) (5) (21) (0) (0) (0) (0) (1)

Investment income 57 12 11 17 12 52 21 22 22 23 88 23 23 23 23 93

Other - (2) (2) 17 (7) 6 1 1 1 1 4 2 3 4 5 14

Total other income 5 (0) 7 27 (3) 31 17 17 18 19 71 25 26 27 28 106

Pre Tax Income 2,757 836 891 1,029 757 3,513 968 1,010 1,108 929 4,016 1,092 1,135 1,234 1,065 4,527

Income tax expense/(benefit) 910 274 284 314 245 1,117 310 323 355 297 1,285 344 358 389 336 1,426

Net income allocated to unvested units 3 - - (1) - (1) - - - - - - - - - -

Net income 1,845 562 608 716 512 2,397 658 687 754 632 2,731 748 778 845 730 3,101

Proforma EPS 14.05$ 4.29$ 4.76$ 5.63$ 4.03$ 18.70$ 5.24$ 5.51$ 6.10$ 5.17$ 22.01$ 6.17$ 6.47$ 7.07$ 6.15$ 25.86$

Diluted shares 131.3 131.0 127.7 127.2 127.0 128.2 125.8 124.8 123.5 122.3 124.1 121.3 120.3 119.5 118.8 119.9

EBITDA 2,900 878 933 1,053 812 3,676 1,007 1,048 1,147 967 4,169 1,125 1,168 1,269 1,099 4,660

Revenue Y/Y Growth: FY10 1Q:11 2Q:11 3Q:11 4Q:11 FY11 1Q:12E 2Q:12E 3Q:12E 4Q:12E FY12E 1Q:13E 2Q:13E 3Q:13E 4Q:13E FY13E

Domestic assessments 10.9% 23.2% 24.5% 25.3% 18.9% 22.9% 17.3% 13.1% 11.4% 13.3% 13.7% 10.7% 10.7% 11.0% 11.3% 10.9%

Cross-border volume fees 27.7% 3.6% 9.2% 7.4% 14.4% 8.7% 11.6% 11.2% 8.8% 11.8% 10.8% 9.8% 13.2% 11.0% 11.0% 11.3%

Transaction processing fees 7.7% 15.9% 18.1% 26.0% 12.6% 18.1% 14.2% 11.0% 9.3% 12.3% 11.6% 12.3% 12.3% 12.3% 11.4% 12.1%

Other revenues 0.9% -1.5% 41.8% 41.8% 26.8% 26.3% 25.8% 13.0% 13.0% 13.0% 15.6% 10.0% 10.0% 10.0% 10.0% 10.0%

Gross Revenue 12.5% 13.2% 20.4% 22.1% 16.8% 18.2% 15.9% 12.1% 10.3% 12.7% 12.6% 10.9% 11.6% 11.3% 11.1% 11.2%

Rebates and incentives 24.8% 8.4% 15.3% 8.0% 8.8% 10.0% 17.8% 13.6% 14.6% 13.8% 14.8% 12.3% 13.0% 13.1% 9.1% 11.7%

Total Net Revenue 8.6% 14.8% 22.1% 27.3% 20.2% 21.2% 15.3% 11.6% 9.0% 12.2% 11.9% 10.5% 11.2% 10.7% 11.9% 11.1%

Y/Y Growth:

Personnel -10.7% 5.8% 21.3% 27.9% 22.6% 19.2% 19.6% 15.2% 9.5% 3.2% 11.4% 6.1% 8.6% 11.8% 8.2% 8.7%Total G&A expenses -4.0% 7.9% 24.7% 27.3% 14.4% 18.3% 18.3% 11.1% 9.1% 3.9% 10.2% 7.0% 9.0% 9.8% 7.8% 8.4%

Advertising and marketing 3.5% 12.2% 7.2% 9.9% 4.6% 7.5% 8.7% 9.8% 9.0% 10.0% 9.5% 15.9% 16.1% 13.7% 14.3% 14.8%

Total Operating Expenses -1.6% 9.4% 20.7% 23.3% 11.4% 15.9% 17.3% 10.9% 9.2% 6.3% 10.4% 8.4% 10.5% 10.7% 10.0% 9.9%

EBITDA 20.4% 19.4% 24.2% 31.2% 32.9% 26.8% 14.7% 12.3% 9.0% 19.2% 13.4% 11.7% 11.5% 10.6% 13.6% 11.8%

Operating income 21.4% 19.4% 23.4% 30.7% 33.6% 26.5% 13.8% 12.2% 8.8% 19.8% 13.3% 12.2% 11.8% 10.7% 14.0% 12.1%

Net income 26.6% 23.9% 32.8% 38.2% 23.3% 30.0% 17.2% 13.0% 5.3% 23.4% 13.9% 13.6% 13.2% 12.1% 15.5% 13.6%

Proforma EPS 25.6% 23.9% 36.6% 42.8% 27.5% 33.1% 22.1% 15.6% 8.4% 28.2% 17.7% 17.9% 17.5% 15.9% 18.9% 17.5%

Margin Analysis % of Revenues:

Personnel 22.0% 22.2% 20.8% 20.4% 23.3% 21.6% 23.0% 21.5% 20.5% 21.4% 21.6% 22.1% 21.0% 20.7% 20.7% 21.1%

Advertising and marketing 14.1% 8.6% 11.6% 11.0% 18.5% 12.5% 8.1% 11.4% 11.0% 18.1% 12.3% 8.5% 11.9% 11.3% 18.5% 12.7%

Total operating expense 50.3% 44.3% 46.9% 44.9% 56.0% 48.1% 45.1% 46.6% 45.0% 53.1% 47.5% 44.2% 46.4% 45.0% 52.2% 47.0%

Rebates/Incentives (% of gross revs) -26.7% -24.1% -24.3% -23.7% -27.2% -24.9% -24.5% -24.6% -24.6% -27.5% -25.3% -24.8% -24.9% -25.0% -27.0% -25.5%

EBITDA margin 52.4% 58.5% 56.0% 57.9% 47.0% 54.8% 58.2% 56.4% 57.9% 49.9% 55.5% 58.8% 56.5% 57.9% 50.7% 55.9%

Operating margin 49.7% 55.7% 53.1% 55.1% 44.0% 51.9% 55.0% 53.4% 55.0% 47.0% 52.5% 55.8% 53.7% 55.0% 47.8% 53.0%

Tax rate 33.0% 32.8% 31.8% 30.5% 32.4% 31.8% 32.0% 32.0% 32.0% 32.0% 32.0% 31.5% 31.5% 31.5% 31.5% 31.5%

Net margin 33.3% 37.4% 36.5% 39.4% 29.6% 35.7% 38.0% 36.9% 38.0% 32.6% 36.4% 39.1% 37.6% 38.5% 33.6% 37.2%

Glenn Greene (312) 360-5942

Source: Company reports and Oppenheimer estimates. Numbers are proforma


12

MasterCard Inc Quarterly Operating Metrics

FY10 1Q:11 2Q:11 3Q:11 4Q:11 FY11 1Q:12E 2Q:12E 3Q:12E 4Q:12E FY12E 1Q:13E 2Q:13E 3Q:13E 4Q:13E FY13E

Purchase Volume by Region (in billions)

APMEA 411$ 120$ 132$ 144$ 152$ 548$ 150$ 163$ 172$ 181$ 666$ 177$ 190$ 201$ 212$ 781$

APMEA Y/Y (nominal) 25.9% 29.9% 40.4% 38.5% 25.6% 33.2% 25.2% 23.2% 19.5% 19.4% 21.6% 18.2% 17.0% 17.0% 17.0% 17.3%

APMEA Y/Y (local) 21.6% 27.2% 27.2% 23.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

APMEA Q/Q -1.2% 10.5% 9.1% 5.6% -1.6% 8.7% 5.9% 5.4% -2.6% 7.6% 5.9% 5.4%

Canada 95$ 24$ 28$ 28$ 29$ 109$ 26$ 29$ 30$ 31$ 115$ 27$ 31$ 31$ 33$ 122$

Canada Y/Y (nominal) 14.5% 14.3% 16.7% 16.7% 11.5% 14.7% 6.6% 3.2% 6.0% 6.0% 5.4% 6.0% 6.0% 6.0% 6.0% 6.0%

Canada Y/Y (local) 7.1% 10.3% 10.7% 9.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Canada Q/Q -7.7% 16.7% 0.0% 3.6% -11.8% 13.0% 2.6% 3.6% -11.8% 13.0% 2.6% 3.6%

Europe 604$ 158$ 181$ 185$ 184$ 708$ 171$ 186$ 191$ 200$ 748$ 183$ 199$ 204$ 214$ 800$

Europe Y/Y (nominal) 11.8% 13.3% 26.6% 20.5% 9.5% 17.2% 8.7% 2.8% 3.2% 8.5% 5.7% 7.0% 7.0% 7.0% 7.0% 7.0%

Europe Y/Y (local) 12.7% 14.1% 13.7% 12.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Europe Q/Q -6.3% 14.9% 2.2% -0.5% -7.0% 8.7% 2.6% 4.6% -8.3% 8.7% 2.6% 4.6%

Latin America 126$ 36$ 40$ 43$ 45$ 164$ 42$ 46$ 48$ 53$ 189$ 49$ 53$ 55$ 61$ 218$

Latin America Y/Y (nominal) 28.6% 33.3% 37.9% 34.4% 18.4% 30.2% 18.0% 15.4% 11.1% 17.3% 15.3% 16.2% 15.0% 15.0% 15.0% 15.3%

Latin America Y/Y (local) 25.0% 28.0% 29.1% 24.8%

Latin America Q/Q -5.3% 11.1% 7.5% 4.7% -5.6% 8.7% 3.5% 10.5% -6.6% 7.6% 3.5% 10.5%

International 1,236$ 337$ 381$ 400$ 410$ 1,528$ 389$ 424$ 440$ 465$ 1,718$ 436$ 473$ 492$ 519$ 1,921$

Int'l Y/Y (nominal) 17.9% 20.8% 31.4% 27.6% 16.1% 23.7% 15.4% 11.2% 10.1% 13.3% 12.4% 12.2% 11.6% 11.7% 11.7% 11.8%

Int'l Q/Q -4.5% 13.1% 5.0% 2.5% -5.2% 9.0% 4.0% 5.5% 63.1% -6.1% 8.4% 4.0% 5.5%

US 813$ 208$ 227$ 227$ 239$ 901$ 237$ 251$ 252$ 264$ 1,004$ 255$ 270$ 271$ 283$ 1,079$

US Y/Y 1.0% 7.2% 11.3% 13.2% 11.7% 10.9% 13.9% 10.7% 11.0% 10.3% 11.4% 7.5% 7.5% 7.5% 7.5% 7.5%

US Q/Q -2.8% 9.1% 0.0% 5.3% -0.9% 6.1% 0.3% 4.6% -3.4% 6.1% 0.3% 4.6%

Total Purchase Volume ($ in B) 2,048$ 545$ 608$ 627$ 649$ 2,429$ 626$ 675$ 693$ 728$ 2,721$ 691$ 743$ 763$ 803$ 3,000$

Y/Y Chg (nominal) 10.6% 15.2% 23.1% 22.0% 14.5% 18.6% 14.8% 11.0% 10.5% 12.2% 12.0% 10.4% 10.1% 10.2% 10.2% 10.2%

Y/Y Chg (local) 62.1%

Q/Q Chg -3.9% 11.6% 3.1% 3.5% -3.6% 7.9% 2.6% 5.2% -5.1% 7.5% 2.7% 5.2%

Assessment Yield 0.129% 0.133% 0.133% 0.134% 0.134% 0.134% 0.136% 0.136% 0.136% 0.136% 0.136% 0.136% 0.136% 0.137% 0.137% 0.136%

Assessment Revenue (MM) 2,641$ 723$ 809$ 843$ 871$ 3,245$ 848$ 915$ 939$ 987$ 3,689$ 939$ 1,012$ 1,042$ 1,099$ 4,092$

Processed transactions (MM) 23,052 5,971 6,601 7,016 7,677 27,265 7,553 8,119 8,489 8,598 32,760 8,460 9,094 9,508 9,544 36,605

Y/Y Change 2.8% 11.1% 17.4% 20.5% 23.2% 18.3% 26.5% 23.0% 21.0% 12.0% 20.2% 12.0% 12.0% 12.0% 11.0% 11.7%

Implied revenue per transaction 0.0954$ 0.0988$ 0.0954$ 0.0988$ 0.0888$ 0.0952$ 0.0892$ 0.0861$ 0.0892$ 0.0891$ 0.0884$ 0.0895$ 0.0864$ 0.0895$ 0.0894$ 0.0887$

Transaction processing fee revenue (MM) 2,198$ 590$ 630$ 693$ 682$ 2,595$ 674$ 699$ 758$ 766$ 2,897$ 757$ 785$ 851$ 853$ 3,246$

Total Revenue / Total Volume 0.270% 0.275% 0.274% 0.290% 0.266% 0.276% 0.277% 0.275% 0.286% 0.266% 0.276% 0.277% 0.278% 0.287% 0.270% 0.278%




13

Visa Inc Quarterly Income Statement($ Millions; FY ends Sept)

12/10 3/11 6/11 9/11 12/11 3/12E 6/12E 9/12E 12/12E 3/13E 6/13E 9/13E

FY10 1Q:FY11 2Q:FY11 3Q:FY11 4Q:FY11 FY11 1Q:FY12 2Q:FY12E 3Q:FY12E 4Q:FY12E FY12E 1Q:FY13E 2Q:FY13E 3Q:FY13E 4Q:FY13E FY13E

Service revenues 3,497 1,008 1,093 1,055 1,105 4,261 1,151 1,181 1,130 1,217 4,678 1,247 1,295 1,247 1,342 5,132

Data processing revenues 3,125 844 823 886 925 3,478 951 930 996 1,020 3,897 1,056 1,033 1,103 1,120 4,313

International transaction revenues 2,290 630 624 662 758 2,674 748 760 781 857 3,145 846 848 871 956 3,521

Other revenues 713 161 156 167 171 655 178 168 180 184 709 190 179 192 197 759

Gross Revenue 9,625 2,643 2,696 2,770 2,959 11,068 3,028 3,038 3,086 3,277 12,429 3,340 3,356 3,413 3,615 13,725

Volume and Support Incentives (1,560) (405) (451) (448) (576) (1,880) (481) (547) (562) (629) (2,219) (544) (597) (614) (680) (2,436)

Total Operating Revenue 8,065 2,238 2,245 2,322 2,383 9,188 2,547 2,491 2,524 2,648 10,210 2,796 2,758 2,799 2,936 11,289

Operating Expenses 74

Personnel 1,222 357 351 363 388 1,459 389 394 399 416 1,597 424 428 432 445 1,728

Network, ESP and communications 425 80 80 91 106 357 98 97 98 101 394 106 105 106 112 429

Advertising, marketing & promotion 964 197 183 251 239 870 190 232 295 286 1,003 252 254 277 285 1,067

Professional and consulting fees 286 61 77 84 115 337 70 87 88 97 342 97 94 95 100 386

Depreciation & amortization 265 67 70 74 77 288 80 80 81 82 323 87 85 86 88 345

Administrative and other 314 110 101 114 96 421 102 105 106 111 424 109 110 112 117 449

Total Operating Expenses 3,476 872 862 977 1,021 3,732 929 994 1,068 1,092 4,083 1,074 1,075 1,109 1,146 4,404

Operating income 4,589 1,366 1,383 1,345 1,362 5,456 1,618 1,497 1,456 1,556 6,127 1,721 1,683 1,690 1,789 6,885

Other Income (Expense)

Interest expense (72) 4 (12) (11) (13) (32) (10) (6) (3) (1) (20) - - - - -

Investment income 48 12 6 88 5 112 9 18 18 18 62 18 19 19 19 75

Total other income (25) 16 (6) 77 (8) 79 (1) 12 14 17 42 18 19 19 19 75

Income (loss) before income taxes 4,564 1,382 1,377 1,422 1,354 5,536 1,617 1,509 1,471 1,572 6,169 1,739 1,702 1,709 1,808 6,959

Income tax expense/(benefit) 1,674 498 497 539 476 2,010 590 472 485 518 2,065 578 566 568 601 2,314

Income (loss) before minority interest 2,890 884 880 883 878 3,526 1,027 1,037 986 1,054 4,104 1,161 1,136 1,141 1,207 4,645

Minority interest (4) - 1 1 2 4 2 2 2 2 8 2 2 2 2 8

Net income 2,887 884 881 884 880 3,530 1,029 1,039 988 1,056 4,112 1,163 1,138 1,143 1,209 4,653

Proforma EPS 3.91$ 1.23$ 1.23$ 1.26$ 1.27$ 4.99$ 1.49$ 1.54$ 1.47$ 1.58$ 6.08$ 1.75$ 1.73$ 1.75$ 1.86$ 7.09$

Diluted shares 739 719 714 704 692 707 690 675 672 669 676 664 659 654 649 656

EBITDA 4,854 1,433 1,453 1,419 1,439 5,744 1,698 1,577 1,537 1,638 6,450 1,808 1,768 1,776 1,877 7,230

Revenue Y/Y Growth: FY10 1Q:FY11 2Q:FY11 3Q:FY11 4Q:FY11 FY11 1Q:FY12 2Q:FY12E 3Q:FY12E 4Q:FY12E FY12E 1Q:FY13E 2Q:FY13E 3Q:FY13E 4Q:FY13E FY13E

Service revenues 10.2% 21.9% 23.5% 20.8% 21.2% 21.8% 14.2% 8.0% 7.1% 10.1% 9.8% 8.4% 9.7% 10.3% 10.3% 9.7%

Data processing revenues 28.6% 10.4% 13.0% 11.9% 10.2% 11.3% 12.6% 13.0% 12.4% 10.2% 12.0% 11.1% 11.1% 10.8% 9.9% 10.7%

International transaction revenues 19.5% 14.1% 14.5% 15.3% 22.5% 16.8% 18.7% 21.7% 17.9% 13.0% 17.6% 13.1% 11.6% 11.6% 11.6% 12.0%

Other revenues 14.1% -15.3% -9.8% -8.7% 2.4% -8.1% 10.6% 7.5% 7.5% 7.5% 8.3% 7.0% 7.0% 7.0% 7.0% 7.0%

Volume and Support Incentives 26.4% 8.3% 21.2% 14.0% 36.8% 20.5% 18.8% 21.3% 25.4% 9.2% 18.0% 13.2% 9.2% 9.4% 8.0% 9.8%

Total Operating Revenue 16.7% 14.2% 14.6% 14.4% 12.6% 13.9% 13.8% 11.0% 8.7% 11.1% 11.1% 9.8% 10.7% 10.9% 10.9% 10.6%

Y/Y Growth:

Personnel 6.9% 30.3% 13.2% 27.4% 9.9% 19.4% 9.0% 12.1% 9.9% 7.1% 9.5% 8.9% 8.6% 8.4% 7.0% 8.2%

Advertising, marketing & promotion 5.0% -8.8% -23.1% -9.4% 2.6% -9.8% -3.6% 26.6% 17.7% 19.6% 15.3% 32.4% 9.5% -6.2% -0.4% 6.4%

Total Operating Expenses 3.1% 17.4% 3.0% 9.5% 1.7% 7.4% 6.5% 15.3% 9.3% 7.0% 9.4% 15.6% 8.1% 3.8% 5.0% 7.9%

EBITDA 28.9% 12.1% 22.7% 18.3% 20.9% 18.4% 18.5% 8.5% 8.3% 13.8% 12.3% 6.5% 12.1% 15.5% 14.6% 12.1%

Operating income 29.7% 12.3% 23.3% 18.3% 22.4% 18.9% 18.4% 8.3% 8.3% 14.2% 12.3% 6.4% 12.4% 16.1% 15.0% 12.4%

Pretax income 29.4% 14.4% 23.7% 26.5% 21.2% 21.3% 17.0% 9.6% 3.4% 16.1% 11.4% 7.5% 12.8% 16.2% 15.0% 12.8%

Net income 36.5% 15.9% 23.5% 23.5% 26.8% 22.3% 16.4% 17.9% 11.7% 20.0% 16.5% 13.0% 9.6% 15.7% 14.5% 13.2%

Proforma EPS 39.8% 20.2% 28.4% 29.5% 33.8% 27.8% 21.2% 24.7% 17.1% 24.2% 21.8% 17.5% 12.2% 18.9% 18.0% 16.6%

Margin Analysis % of Revenues:

Volume & Support Incentives (% of gross rev) 16.2% 15.3% 16.7% 16.2% 19.5% 17.0% 15.9% 18.0% 18.2% 19.2% 17.9% 16.3% 17.8% 18.0% 18.8% 17.7%

Personnel 15.2% 15.9% 15.6% 15.6% 16.3% 15.9% 15.3% 15.8% 15.8% 15.7% 15.6% 15.2% 15.5% 15.5% 15.2% 15.3%

Advertising, marketing promotion 12.0% 8.8% 8.2% 10.8% 10.0% 9.5% 7.5% 9.3% 11.7% 10.8% 9.8% 9.0% 9.2% 9.9% 9.7% 9.5%

Total operating expense 43.1% 39.0% 38.4% 42.1% 42.8% 40.6% 36.5% 39.9% 42.3% 41.3% 40.0% 38.4% 39.0% 39.6% 39.1% 39.0%

EBITDA margin 60.2% 64.0% 64.7% 61.1% 60.4% 62.5% 66.7% 63.3% 60.9% 61.9% 63.2% 64.7% 64.1% 63.5% 64.0% 64.0%

Operating margin 56.9% 61.0% 61.6% 57.9% 57.2% 59.4% 63.5% 60.1% 57.7% 58.8% 60.0% 61.6% 61.0% 60.4% 61.0% 61.0%

Tax rate 36.7% 36.0% 36.1% 37.9% 35.1% 36.3% 36.5% 31.3% 33.0% 33.0% 33.5% 33.3% 33.3% 33.3% 33.3% 33.3%

Net margin 35.8% 39.5% 39.2% 38.1% 36.9% 38.4% 40.4% 41.7% 39.1% 39.9% 40.3% 41.6% 41.3% 40.8% 41.2% 41.2%




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Visa Inc Quarterly Operating Metrics

12/10 3/11 6/11 9/11 12/11 3/12E 6/12E 9/12E 12/12E 3/13E 6/13E 9/13E

FY10 1Q:FY11 2Q:FY11 3Q:FY11 4Q:FY11 FY11 1Q:FY12 2Q:FY12E 3Q:FY12E 4Q:FY12E FY12E 1Q:FY13E 2Q:FY13E 3Q:FY13E 4Q:FY13E FY13E

Purchase Volume by Region (in billions)

Asia Pacific 797$ 239$ 230$ 246$ 271$ 986$ 275$ 261$ 282$ 298$ 1,116$ 309$ 293$ 316$ 335$ 1,253$

Asia Pacific Y/Y (Nominal) 21.5% 21.9% 18.9% 24.9% 28.4% 23.7% 15.1% 13.8% 14.5% 10.1% 13.3% 12.2% 12.2% 12.2% 12.2% 12.2%

Asia Pacific Y/Y (Constant Currency) 15.0% 11.5% 13.7% 17.5%

Asia Pacific Q/Q 13.3% -4.0% 7.2% 10.2% 1.5% -5.0% 7.9% 5.9% 3.4% -5.0% 7.9% 5.9%

Canada 190$ 53$ 48$ 55$ 55$ 211$ 57$ 51$ 57$ 59$ 225$ 62$ 55$ 62$ 64$ 244$

Canada Y/Y (Nominal) 22.6% 12.8% 9.1% 10.0% 12.2% 11.1% 7.5% 6.4% 4.1% 7.7% 6.4% 8.6% 8.6% 8.6% 8.6% 8.6%

Canada Y/Y (Constant Currency) 6.8% 7.0% 8.4% 7.7%

Canada Q/Q 8.2% -9.4% 14.6% 0.0% 3.6% -10.4% 12.1% 3.5% 4.6% -10.4% 12.1% 3.5%

CEMEA 98$ 30$ 30$ 35$ 37$ 132$ 39$ 38$ 41$ 44$ 162$ 48$ 47$ 50$ 53$ 197$

CEMEA Y/Y (Nominal) 25.6% 30.4% 30.4% 40.0% 37.0% 34.7% 30.0% 27.5% 17.0% 18.0% 22.6% 22.0% 22.0% 22.0% 22.0% 22.0%

CEMEA Y/Y (Constant Currency) 32.2% 31.2% 36.7% 36.1%

CEMEA Q/Q 11.1% 0.0% 16.7% 5.7% 5.4% -1.9% 7.1% 6.6% 9.0% -1.9% 7.1% 6.6%

LAC 253$ 82$ 77$ 86$ 90$ 335$ 94$ 88$ 93$ 97$ 372$ 106$ 100$ 106$ 111$ 424$

LAC Y/Y (Nominal) 31.1% 28.1% 32.8% 39.2% 30.4% 32.5% 14.6% 13.8% 7.2% 8.3% 10.8% 13.2% 14.3% 14.3% 14.3% 14.0%

LAC Y/Y (Constant Currency) 26.7% 26.1% 28.7% 23.8%

LAC Q/Q 18.8% -6.1% 12.1% 4.3% 4.4% -6.8% 5.6% 5.3% 9.3% -6.0% 5.6% 5.3%

International 1,338$ 404$ 385$ 422$ 453$ 1,664$ 465$ 438$ 472$ 499$ 1,874$ 525$ 495$ 534$ 564$ 2,118$

Int'l Y/Y (Nominal) 23.7% 22.4% 20.9% 26.4% 27.2% 24.3% 15.1% 13.9% 11.9% 10.1% 12.6% 12.8% 13.1% 13.0% 13.0% 13.0%

Int'l Q/Q 13.5% -4.8% 9.8% 7.3% 2.6% -5.8% 7.9% 5.6% 5.2% -5.6% 7.8% 5.6%

US 1,807$ 493$ 477$ 518$ 516$ 2,004$ 529$ 513$ 552$ 551$ 2,146$ 566$ 554$ 596$ 598$ 2,315$

US Y/Y 11.8% 12.6% 11.6% 10.5% 9.1% 10.9% 7.3% 7.7% 6.5% 6.8% 7.1% 7.0% 8.0% 8.0% 8.5% 7.9%

US Q/Q 4.2% -3.3% 8.8% -0.5% 2.5% -3.0% 7.6% -0.1% 2.7% -2.1% 7.6% 0.3%

Total Visa Inc. $ Payments Volume 3,145$ 897$ 861$ 941$ 969$ 3,668$ 994$ 951$ 1,024$ 1,050$ 4,020$ 1,091$ 1,050$ 1,130$ 1,162$ 4,432$

Y/Y Chg (Nominal) 16.5% 16.8% 15.6% 17.1% 16.9% 16.6% 10.8% 10.5% 8.9% 8.4% 9.6% 9.7% 10.3% 10.3% 10.7% 10.3%

Y/Y Chg (Constant USD) 14.5% 13.0% 13.5% 13.2%

Q/Q Chg 8.2% -4.0% 9.3% 3.0% 2.6% -4.3% 7.7% 2.5% 3.9% -3.8% 7.7% 2.8%

Processed Transactions (VisaNet in MM) 45,412 12,580 12,040 13,038 13,262 50,920 13,600 13,124 14,114 14,290 55,127 14,688 14,305 15,384 15,576 59,952

Y/Y Growth 13.9% 15.2% 13.1% 11.2% 9.4% 12.1% 8.1% 9.0% 8.3% 7.8% 8.3% 8.0% 9.0% 9.0% 9.0% 8.8%

Implied revenue per transaction 0.0688$ 0.0671$ 0.0684$ 0.0680$ 0.0697$ 0.0683$ 0.0699$ 0.0709$ 0.0705$ 0.0714$ 0.0707$ 0.0719$ 0.0722$ 0.0717$ 0.0719$ 0.0719$

Y/Y Growth 12.9% -4.1% 0.0% 0.6% 0.7% -0.7% 4.2% 3.7% 3.8% 2.3% 3.5% 2.9% 1.9% 1.7% 0.8% 1.8%

Transaction processing fee revenue (MM) 3,125$ 844$ 823$ 886$ 925$ 3,478$ 951$ 930$ 996$ 1,020$ 3,897$ 1,056$ 1,033$ 1,103$ 1,120$ 4,313$

Volume and Support Incentives / Gross Revenue -16.2% -15.3% -16.7% -16.2% -19.5% -17.0% -15.9% -18.0% -18.2% -19.2% -17.9% -16.3% -17.8% -18.0% -18.8% -17.7%

Total Revenue / Total Purchase Volume (1qrt lag) 0.266% 0.270% 0.250% 0.270% 0.253% 0.260% 0.263% 0.251% 0.265% 0.258% 0.259% 0.266% 0.253% 0.267% 0.260% 0.261%

^Purchase transaction volume is Oppenheimer estimate as the metric is reported on a one quarter lag




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Price Target CalculationVisa: Given our conviction that Visa can deliver sustainable mid- to high-teens EPS growth for the foreseeable future, its increasing skewof volume toward faster growing emerging markets, its strong global share position, and a likely continued gradual lift of the Durbin andMerchant Litigation overhangs, we believe Visa remains attractive at current levels. Our revised $140 PT is based on ~19x our CY13 EPSestimate of $7.31, which we believe is reasonable given our expected long-term EPS growth for the company.

MasterCard: Given our conviction that MA can deliver high-teens EPS growth for the foreseeable future, we believe that MasterCardremains attractive at current levels. Additionally, the Durbin legislation, previously considered a risk, may even provide near-term marketshare benefits. Furthermore, recent clarity regarding MA's potential exposure to the Merchant Litigation case removes a significant overhangon the shares. Our revised $475 PT is based on ~18.5x our FY13 EPS estimate of $25.86 and equates to 12x our FY13 EBITDA estimateof $4.66B. We believe our implied valuation multiple is reasonable relative to historical and projected earnings growth.

Key Risks to Price TargetVisaProposed Interchange Legislation: While the Fed recently finalized new US debit interchange rate and routing rules, risk still exists thatfuture legislation could consider US credit card interchange rates, or that credit card interchange rates could potentially be modified as aresult of the ongoing merchant litigation case. A meaningful reduction of credit card interchange rates would likely temper industry cardvolume growth in the US, with potentially derivative adverse implications for Visa, in our view. US debit volume represents ~32% of V'sglobal purchase volume; US credit volumes are 25% of total volume.De-leveraging US Consumer: After many years of solid growth, revolving credit outstanding has remained tight since 2009.Derivative Implications from Issuer Pressures: In the face of rising unemployment, rising credit costs, the CARD Act and pending debituncertainty, financial institutions have reduced new card solicitations and credit lines. Industry credit card solicitations sent via US mail fell27% Y/Y to 3.8 billion offers in 2008 and fell another 63% Y/Y to 1.4 billion offers in 2009, but rose to an estimated 2.25 billion in 2010,according to the Mail Monitor.Litigation Risks: Visa has managed through a challenging legal environment in recent years. The company has settled two significantlitigation cases out of court in recent years and remains subject to several pending lawsuits. We view the merchant/interchange case asthe most significant pending case for Visa.

MasterCardProposed Interchange Legislation: While the Fed recently finalized new US debit interchange rate and routing rules, risk still exists thatfuture legislation could consider US credit card interchange rates, or that credit card interchange rates could potentially be modified as aresult of the ongoing merchant litigation case. A meaningful reduction of credit card interchange rates would likely temper industry cardvolume growth in the US, with potentially derivative adverse implications for MA, in our view. US debit volume represents ~15% of MA'sglobal purchase volume; US credit volumes are 24% of total volume.De-leveraging US Consumer: After many years of solid growth, revolving credit outstanding has remained tight since 2009.Derivative Implications from Issuer Pressures: In the face of rising unemployment, rising credit costs, the CARD Act and pending debituncertainty, financial institutions have reduced new card solicitations and credit lines. Industry credit card solicitations sent via US mail fell27% Y/Y to 3.8 billion offers in 2008 and fell another 63% Y/Y to 1.4 billion offers in 2009, but rose to an estimated 2.25 billion in 2010,according to the Mail Monitor.Litigation Risks: MasterCard has managed through a challenging legal environment in recent years. MasterCard has settled a couple ofsignificant litigation cases out of court in recent years, and the company remains subject to several pending lawsuits. We view the merchant/interchange case as the most significant pending case for MasterCard.

Companies with Updates:OUTPERFORMMasterCard Incorporated(MA,$430.94)Visa Inc.(V,$118.98)

Important Disclosures and CertificationsAnalyst Certification - The author certifies that this research report accurately states his/her personal views about thesubject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no partof his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views containedin this research report.


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Potential Conflicts of Interest:Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firmincluding the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensationbased upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any researchanalyst and any member of his or her household from executing trades in the securities of a company that such researchanalyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer,director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in coveredcompanies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long positionof less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options,futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoingarrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:Stock Prices as of April 4, 2012MasterCard Incorporated (MA - NYSE, 430.94, OUTPERFORM)SunTrust Banks, Inc. (STI - NYSE, 24.02, OUTPERFORM)Visa Inc. (V - NYSE, 118.98, OUTPERFORM)


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All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co.Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories,please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflictof interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:


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Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/orthe ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to aperceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higherrated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressivetrading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceivedin the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 332 55.61 147 44.28

PERFORM [P] 258 43.22 91 35.27

UNDERPERFORM [U] 7 1.17 3 42.86

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do notcorrelate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assignedbuy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Additional Information Available

Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: EquityResearch Department, Business Manager.

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Visa vs Mastercard - Oppenheimer - April 2012

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