The giant payment processing firms are in the sweet spot of global commerce, benefitting from both e-commerce and in-store sales. Visa (NYSE: V) and Mastercard (NYSE: MA) both earn fees on a large chunk of global transactions, without the risk that comes with many other financial companies.
So, if you are only going to own one, which would it be? In this article, we will compare Visa and Mastercard across a range of factors to see if there is a clear winner. We will start with market share.
Revenue and Transactions
As far as market value goes, Visa is the leader with a market cap of $346 billion, while Mastercard has a market value of $241 billion. So how do those values compare to the business each company is doing?
When it comes to market share, Visa has about 61.5% of the global market payments market, while Mastercard trails quite a long way behind with 25%. Market share can be a subjective measure in this case so it’s worth looking at other measures too.
In terms of the number of transactions, Visa debit and credit cards were used for about 70 billion transactions in 2018, versus about 34 billion for Mastercard. And, when it comes to credit card purchase volume, Visa cards were used for $1.956 trillion worth of purchases in 2018, while Mastercard credit card purchases reached $810.90 billion for the year.
So, while the market value of Visa is 1.43 times that of Mastercard, it is doing more than 2.3 times the total value in credit card transactions, more than twice as many transactions, and has 2.4 times more market share. On the face of it, this may imply that Mastercard is a little pricey – however, if it is growing faster the relative value may be justified.
In fact, Mastercard is growing a little faster and did take a small percentage of market share away from Visa in 2018. But this was the first time it had done so since 2012 – so it can’t yet be described as an ongoing trend.
Over the last few years, Mastercard has tended to trade at higher multiples than most of its competitors, including Visa. It currently trades on trailing earnings multiple of 42, while Visa’s is 34. However, based on earnings estimates for the next 12 months, both are on a multiple of about 26.
Other valuation measures give mixed signals with both appearing cheaper depending on which metric you use. On balance, MA appears slightly more expensive but is also expected to grow a little faster.
Mastercard’s stock price performance has been better than Visa’s for most periods over the past 10 years. However, when you add it up, the outperformance has been fairly marginal. Over the last five years, MA has returned 223%, while Visa has gained 197%.
Both companies have quite low dividend yields. Visa yields about 0.63%, while Mastercard yields 0.56%. When you consider the fact that the share prices have risen well over 30% a year for the last few years, the dividend yield is almost irrelevant.
In terms of profitability, Visa has a higher operating margin, but Mastercard has a higher ROE due to its use of debt. Again, there is no clear winner.
Both companies are pursuing acquisitions and investing in technology to remain competitive. At this point, there is no clear leader in this race. It’s worth bearing in mind that a major breakthrough could change the playing field, but right now they are evenly matched in this regard.
As far as finding a clear winner between Visa and Mastercard goes, there isn’t one. However, if you have to pick one, Visa may be the better option – here’s why:
Investors often make the assumption that Mastercard has more market share to gain and will, therefore, grow more over the long term. However, this and higher earnings growth is already priced into the stock, and this leaves more room for a downside surprise for Mastercard. For Visa to justify its current price it needs to grow at the same rate going forward that it has in the past. Mastercard has to grow 25% faster over the next five years to reach analysts estimates. For this reason, Visa is the better pick for now, but that could change quickly if there are new developments in the industry.