However, the momentum started to wane in July/August as both stocks fell. Both stocks trail the SPDR S&P 500 ETF’s 18.3% YTD gain (SPY) by a wide margin. The Motley Fool has positions in and recommends Mastercard and Visa. Apple’s brand has done a fantastic job convincing consumers that once you have one Apple product, you need all the other Apple products. I say this as I type on my Macbook with my iPhone closeby, and my now dated Apple Watch on my wrist.
Data processing fees are known as “switching fees,” which are a small, fixed cost per transaction charged to the issuer. These stocks also offer modest dividends to reward patient investors. Choosing between the two may come down to which stock suits investors’ portfolio strategy.
Fundamentals: Visa vs. Mastercard
Following the modest gains, Mastercard posted its highest-ever closing share price of $414, while Visa’s $247 is also the top on record. If I could only select one https://investmentsanalysis.info/ out of the two, I would chose Mastercard for the reasons mentioned before. Notably, cross-border transactions have yet to recover to their pre-COVID highs.
Visa and Mastercard do not issue cards directly to the public but rather through partner member financial institutions such as banks and credit unions. The member financial institution then issues cards for individuals and businesses, either directly or in partnership with airline, hotel, or retail brands. In other words, the United States isn’t exactly a high-growth market for credit card middlemen.
The companies’ Dividend and Dividend Growth
Sell-side analysts also expect the company’s adjusted earnings per share to grow by +24% YoY and +29% YoY, respectively. In absolute terms, Visa’s gross dollar volume of $6,788 billion for 2020 was almost twice as large as Mastercard’s 2020 gross dollar volume of $3,431 billion. V’s revenue decreased by -6% YoY to $5,687 million in 1Q FY 2021, but this represented a QoQ growth rate of +11% as compared to Visa’s 4Q FY 2020 revenue of $5,101 million. As a comparison, Visa, Inc’s top line was down -17% for both 3Q FY 2020 and 4Q FY 2020. Furthermore, Visa’s actual 1Q FY 2021 revenue was $180 million higher than market consensus revenue estimates. Judging by these metrics alone, although Visa is currently more profitable than Mastercard, the earnings growth of Mastercard should be considered when making an investment decision.
- There isn’t much to discuss and even though the numbers are very close and the best ratios I have seen I am giving MA the point.
- At the end of 2020 V had $80.92 billion in total assets which was an increase of $41.55 billion (105.53%) over the past 5 years and $12.94 billion (19.04%) in the past 3 years.
- Each company should also continue to benefit as cash continues to account for a decreasing portion of spending and commerce continues to migrate to digital channels.
- Mastercard’s performance and growth trump Visa, while Visa’s stock appears to have the edge in valuation.
- Visa (V 0.09%) and Mastercard (MA -0.13%) have long had some of the best operating profit margins.
One of the reasons for this is that I consider the company to be even stronger when it comes to Profitability. Quick experiment, think about Forex trading 24 hours how many credit cards are in your wallet. I am willing to bet that you have a Visa
credit card somewhere.
Mastercard Vs. Visa Stock: Choose One, Take Both, Or None?
But there’s a reason that the market is willing to assign a higher multiple to Mastercard. Mastercard (MA -0.13%) and Visa (V 0.09%) are two giants of the financial services world and account for a huge portion of the card-based payments market. Read on for differing bull cases from two Motley Fool contributors. In the same year the U.S. accounted for $39.6 billion combined purchase transactions further proving America is a society that loves to spend.
Visa and Mastercard are the only network payment processors involved in all three areas of the payments market. Working exclusively as network processors, these two companies have a unique edge, but they operate differently. Visa, Mastercard, American Express, and Discover are responsible for handling the majority of the world’s card payments. Visa and Mastercard present distinct offerings, as neither company is involved with extending credit or issuing cards.
MA has had an annual average growth rate of 6.79% over the past 5-years and 2.79% over the past 3-years. In my opinion, this will be positive for Visa, which has a large debit program as compared to its rival Mastercard. The last item on the cash flow statement I am looking at is how much free cash each share generates. In 2020 V generated $4.54 in free cash flow per share which was an increase of $2.02 (80.16%) over the past 5 years and $0.79 (21.07%) over the past 3 years.
Both are publicly traded and are integral pieces of the credit card industry. Credit card payments in 2018 totaled $44.7 billion in the U.S. alone, according to a 2019 Feder Reserve Payment Study. It is also noteworthy that Mastercard is expanding its debit business. MA disclosed at the company’s recent results briefing that its “debit share in the U.K. from low single digits to approximately one-third of the market” following recent wins. Mastercard reported strong financial results for the second quarter of 2023. The business reported $6.27 billion in revenue, which beat analyst forecasts by $96 million and rose by 14% year over year.
- In 2020 V generated $8.23 billion in levered free cash flow which is an increase of $1.34 billion (19.42%) over the past 5-years and $867.2 million (11.77%) over the past 3-years.
- Visa has a fortress-like balance sheet with $18.756 billion in cash and short-term investments.
- The pace is also largely in line with the recovery in travel spending.
- Both are publicly traded and are integral pieces of the credit card industry.
- Ultimate Growth Investing, led by founder JR Wang of JR Research, helps investors better understand a range of investment sectors with a focus on technology.
Despite the macroeconomic headwinds, it was interesting to discover U.S. payments volume is up a solid 54% since 2019. Visa reported strong financial results for its fiscal third quarter of 2023. Its revenue of $8.12 billion beat analyst forecasts by $58.88 million and increased by 11.66% year over year. So the question of which stock is the better value in the current environment really depends on ones understanding of the financial sector and objectives.
So far in my opinion, V and MA have been very close and I think their numbers are both great but I am giving the point to V in this category. V is generating $4.46 billion more in net income and is generating similar growth rates from a larger starting point. At Mastercard’s current stock price of $369.00, my DCF Model indicates an Internal Rate of Return of about 12% for the company.
MA’s YoY revenue decline has narrowed from -19% in 2Q 2020 and -14% in 3Q 2020 to -7% in 4Q 2020. On a QoQ basis, Mastercard’s top line increased by +7% to $4,120 million in the most recent quarter, and this was better than sell-side analysts’ 4Q 2020 revenue forecast of $4,010 million. The stock also trades with a price-sales ratio of 17, which is below its average for the same period. The stock also trades at a price-sales ratio of 16, which is cheaper than its average over the same period. This is a fantastic business model, as Visa is embedded right in the heart of the transaction value chain.
Visa Vs. Mastercard Stock: Which Financial Stock Is The Better Buy
Anyone can review their past dividend history, alongside other metrics, on Morningstar, a free investing resource. Another example is that Visa is clearly interested in deals in the B2C space. Thirdly, Visa has a relatively stronger emphasis on the B2C (Business To Consumer) payments market, while Mastercard is more focused on opportunities in the B2B (Business To Business) payments market.