Visa vs Mastercard: Which Credit Card Stock is a Better Buy? By StockNews

Staying with ratio’s I also look at a company’s total cash and short-term investments to their total long-term debt. A lot of people don’t look at this but I feel more comfortable if a company has more on hand liquidity than their long-term debt or at least a large percentage. At the close of 2020 V had $20.94 billion in total cash & short-term investments on hand while there was $21.07 billion in long-term debt on the books.

• This is important because levered free cash flow represents the cash that is left over after all the bills are paid.
• Two juggernauts in the finance world have been battling each other for market shares since the dawn of electronic payments.
• On the 3-year side, V grew its revenue by 19% and had an average annual growth rate of 6.28% while MA grew its revenue by 22.44% with an average annual growth rate of 7.73%.
• Looking ahead, market consensus sees Mastercard’s top line expanding by +18% YoY for both this year and next year, respectively.
• However, choosing between two companies that are so similar can be difficult.

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. Mastercard is the smaller of the two entities and has a lot more room to grow in the industry, which it certainly seems to be doing. Moreover, Visa’s high Return on Invested Capital further underscores its efficient use of capital.

Both stocks are currently trading at historically cheap prices

The company’s non-GAAP net income grew 42% year-over-year to $3.50 billion. On December 20, 2021, V announced it had completed the acquisition of Currencycloud, a global platform that enables banks and fintech to provide innovative foreign exchange solutions for cross-border https://bigbostrade.com/ payments. The acquisition will empower Visa and Currencycloud clients and partners to provide greater transparency, flexibility, and control for consumers and businesses. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company.

They stand at share prices of $322 and $196, with market caps of $316.5 billion and $414 billion, respectively. Those are growth rates of over 8x and 4x in share price and over 85x and 23x in market cap within a margin of 15 years. 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. V has had a 5-year annual average growth rate of 17.98% and 9.63% over the past 3-years. MA generated $6.50 in free cash flow per share in 2020 which was an increase of $3.19 (96.17%) over the past 5-years and $1.59 (32.38%) over the past 3-years.

Transaction volumes might decline, and the total amount of spending through the network might also decline, but people still need to buy and sell essential items in an economic downturn. The economy will eventually recover, and these companies even have built-in inflation protection by taking a percentage of each transaction as revenue. Like Visa, Mastercard earns the majority of its revenue from service and data processing fees.

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It will most certainly boost the recovery of international travel and spending. Therefore, leading payments players with massive cross-border revenues such as MA and V are primed to benefit. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing simple and – dare we say it – fun. Governance is one of those items that seems to be forgotten until it’s the only thing that matters. Just ask shareholders of Under Armour or General Electric, who saw returns plummet with no one to reign in strong-willed CEOs.

In 2020 V had a net income ratio of 49.74% ($10,866 / $21,846) and MA had a net income conversion rate of 41.90% ($6,411 / $15,301). I have never seen gross profit margins so high as V had a 96.67% gross profit margin and MA had a 100% gross profit margin in 2020. 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. Mastercard’s dividend per share in 2021 was $1.76 compared to its $1.00 dividend per share in 2018. On the other side, Visa 2021 dividend payout totaled $1.34 compared to the 2018 dividend payout of $0.88. When we review the dividend growth, Mastercard’s dividend has grown by $0.76 compared to Visa’s dividend growth of $0.46.

Since much of the investment to build out the network was made decades ago, Visa’s business is incredibly profitable now. Between 2013 and 2022, the company averaged an operating profit margin of 65.5%. You would be hard-pressed to find many companies with operating profit margins this high.

• Choosing between the two may come down to which stock suits investors’ portfolio strategy.
• However, the momentum started to wane in July/August as both stocks fell.
• Below you can find some additional data in regards to the companies’ Dividends.
• Over the long run, it’s unlikely that you could go wrong with either Visa or Mastercard, making them both look like long-term buy-and-holds.

MA generated $6.41 billion in net income for 2020 which was an increase of $2.60 billion (68.36%) over the past 5 years and $2.5 billion (63.75%) over the past 3 years. MA has a 5-year average annual growth rate of 14.05% and 22.39% over the past 3-years. Visa and Mastercard are both tech companies that connect consumers and merchants for digital transactions and have been seen as rivals in the e-payments sector for over a decade. Mastercard had its IPO in 2006 with a share price of $39 and a market cap of $3.7 billion, while Visa had its IPO in 2008 with a share price of $44 and a market cap of $17.9 billion.

Most of us are a little too busy with our lives to dig into such details or to think philosophically about these things. But the U.S.’s (and Canada’s) credit and debit card market is pretty well saturated. Federal Reserve Bank reports that 77% of all adults living in the U.S. own a credit card, while 93% hold a debit card. They were my forex trading scams five (out of eight fintech stocks) and this was my number six just because they’re slightly smaller company which generally means a little bit more growth potential. Mastercard has been a little bit more aggressive when it comes to embracing new technologies, and like Jason said, that person-to-person and business-to-business payments.

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V’s revenue and EPS have grown at CAGRs of 5.4% and 8.4%, respectively, over the past three years. Analysts expect the company’s revenue to increase 18.9% for the quarter ending March 31, 2022, and 14.2% next year. Its EPS is expected to increase 20.3% for the quarter ending March 31, 2022, and 19.6% next year. Moreover, its EPS is expected to grow at a rate of 17.7% per annum over the next five years. 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.

It isn’t uncommon for these businesses to trade in near-lockstep, as they are similar. However, Mastercard has significantly outperformed Visa over the past five years, even though both have been fantastic investments. Few companies have a more dominant duopoly in their industry than Visa (V 0.03%) and Mastercard (MA -0.10%). Yes, Discover and American Express are popular card issuers in the U.S.

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As the chart above illustrates, the company has a significantly lower forward price/earnings-to-growth (PEG) ratio than Visa. Simply put, Visa holds the larger market share regarding financial transactions. Visa and Mastercard generally earn a small percentage every time a consumer swipes their credit, debit, or prepaid card. The key metric to their profits is how many transactions they process annually. Nilson Report’s global credit card in 2019 for brand transactions was led by Visa, handling 5 billion purchase transactions, and Mastercard fell short at 4 billion transactions. The system Visa has built is capable of processing billions of transactions annually, with a focus on both high volume and security.

View all the other top-rated stocks in the Consumer Financial Services industry here. MA’s net revenue increased 30% year-over-year to $5 billion for the third quarter ended September 30, 2021. The company’s adjusted net income increased 46% year-over-year to $2.30 billion. V’s net revenue increased 29% year-over-year to $6.60 billion for the fiscal fourth quarter ended September 30, 2021.

Mastercard Stock

Dividend lovers should keep their eye on Mastercard for that reason. Choosing between the two companies comes down to what one values as an investor. Going just by the numbers, Visa has the edge with higher profitability, better returns on invested capital, and the potential for greater dividends and buybacks.