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The revenues of Visa and Mastercard have been significantly growing over the last 5 fiscal years. Now the companies have all the chances to hit $1 trillion in market capitalization.
Tech and internet companies were the first that succeeded to reach $1 trillion in stock market value. However, the next U.S. companies that could join this prestigious clique are better known for something else. We are talking here about card companies as are Mastercard Inc. and Visa Inc.
Take Mastercard for example. In its fourth-quarter earnings report, the company said that its GAAP earnings per share (EPS) surged incredible 138% in the fourth quarter to arrive at $2.07, while revenues added 16% in the same period, standing at $4.4 billion. Operating income doubled from the last three months of 2018 to reach $2.4 billion.
Visa, on the other hand, said its net revenue in the first fiscal quarter of 2020 amounted to $6.1 billion, a 10% increase compared to the same period last year.
Visa and Mastercard Stocks Rocketed 50% in 2019
Let’s also mention soaring stock prices of both companies, that are pushing credit and debit card companies Visa Inc and Mastercard Inc up the market value charts, where they currently sit on 7th and 11th place among other companies in the benchmark S&P 500 index. In 2019, both stocks advanced by approximately 50%.
Analysts think that both companies could be worth more than $1 trillion by 2023 if their average annual gains of the past three years continue to grow at current pace.
Sandy Villere, portfolio manager of the Villere Balanced Fund, which holds Visa shares said:
“Everything travels on their rails. They literally sit in the middle of the banks, consumers and merchants and that has been a really enviable place to be.”
Visa had a market value of $433.7 billion and Mastercard’s stood at about $317.2 billion on Friday at 12:50 pm ET.
The members of the privileged $1 trillion club are Apple Inc, Microsoft, and Google‘s parent Alphabet. Amazon’s market value is hovering at around $1 trillion. On Friday at 12:50 pm ET it was $1,01 trillion. However, earlier it fell below this line.
Members of Information Technology Sector
Lisa Ellis, senior analyst at MoffettNathanson says that approximately 43% of consumer purchases around the world ( without China) are made through some sort of digital payment.
“Globally, we still have five to 10 years, at least, to go of penetration.”
She added that Visa currently has a 60% share of the credit and debit card market. Mastercard has 30%, and American Express holds 8.5%.
Even though at first it seems those two companies are far inside the financial sector, according to S&P 500, they fit into the information technology sector.
According to Refinitiv Datastream, Visa trades at nearly 32 times forward 12 months’ earnings estimates. Mastercard trades at 35 times. Both stocks are trading at a higher premium to the market than they have on average during the last five years.
The American market has been bullish for a long time now. Almost 10 years. And it has been a good thing for both companies. Both stocks started the year pretty strong. However, after the spread of coronavirus from China, investors have been more and more concerned so the stock prices were pulled as well.
Risks Include Larger Competition and More Severe Laws
The thing that both companies are fitted into IT sector and not finance, brings some risks. Ellis claims that those risks include wider competition in the payment sector from big tech companies, as well as more severe laws from governments around the world.
The companies, however, decided not to sit calmly. Earlier this month, Visa agreed to acquire Plaid Inc for $5.3 billion. Last year, Mastercard said to buy a majority of the corporate services businesses of Scandinavian payments group Nets for around $3.19 billion.