Best Investment Visa or Mastercard? - Should You Invest Now?
Summary
TLDRThe video script discusses Visa's recent earnings report, which, despite showing a 10% revenue increase and a 12% rise in adjusted earnings, was deemed disappointing due to a 4% stock price drop. It compares Visa and MasterCard's business models, growth vectors, and potential risks, highlighting their duopoly in the credit card industry. The script also explores the companies' financial metrics, dividend growth, and valuation, concluding that while MasterCard shows slightly better financial performance, Visa offers better value. The analysis suggests considering both companies for investment but advises not to count them as separate positions in a portfolio.
Takeaways
- ๐ Visa's stock price dropped by almost 4% on the day of their earnings report, despite a 10% increase in revenue and a 12% increase in adjusted earnings.
- ๐ค The presenter questions the market's reaction to Visa's earnings, suggesting that the disappointment might not align with the reported growth figures.
- ๐ก The business model of Visa and MasterCard is based on being payment processors, with revenue generated from merchant fees rather than carrying consumer debt.
- ๐ Both Visa and MasterCard are considered to have a strong position in the market due to their global recognition and widespread acceptance by merchants.
- ๐ Key growth drivers for Visa and MasterCard include the shift from cash to electronic payments, increased consumer spending, and currency conversion fees during travel.
- ๐ A potential risk for these companies is the ongoing antitrust investigations and merchant dissatisfaction with the high fees charged for transactions.
- ๐ The script suggests using a tool like DSR to compare stocks and analyze various metrics such as revenue growth, earnings growth, and dividend growth.
- ๐ MasterCard showed slightly better performance in terms of revenue, earnings, and dividend growth over the past five years compared to Visa.
- ๐ฐ Visa has a larger market capitalization and processes more transactions, positioning it as a market leader ahead of MasterCard.
- ๐ MasterCard has a higher PE ratio and forward PE ratio, indicating that investors might be paying a steeper price for its shares compared to Visa.
- ๐ผ The presenter concludes that both Visa and MasterCard have strong business models and could be suitable for an investor's portfolio, with a slight preference for MasterCard based on the financial metrics presented.
Q & A
Why were Visa's reported earnings considered disappointing despite showing growth?
-Visa's reported earnings were considered disappointing because the stock price dropped by almost 4% on the earnings day, indicating that the market's expectations were not met despite the revenue increase of 10% and adjusted earnings increase of 12%.
What is the primary business model of Visa and MasterCard?
-Visa and MasterCard primarily operate as payment processors. They facilitate transactions between consumers and merchants, charging fees to merchants and not carrying consumer debt, which makes their business model quite robust and less risky.
How do Visa and MasterCard benefit from the shift from cash to electronic payments?
-Visa and MasterCard benefit from the shift to electronic payments as more transactions mean more fees collected from merchants. This trend also includes currency conversion fees when consumers travel, further increasing their revenue.
What are the growth vectors for Visa and MasterCard?
-The main growth vectors for Visa and MasterCard are the global shift from cash to electronic payments, increased consumer spending, and travel which leads to more transactions and currency conversion fees.
What is the potential downside of Visa and MasterCard's business model?
-A potential downside is the reliance on merchant fees, which can be subject to regulatory changes and antitrust investigations. Merchants may also push back against high fees, which could slow growth.
How does the script differentiate between Visa and MasterCard in terms of financial performance?
-The script uses the DSR stock comparison tool to analyze various financial metrics such as revenue growth, earnings growth, and dividend growth, showing slight advantages for MasterCard in terms of revenue and earnings growth over the past five years.
What valuation metrics are used to compare Visa and MasterCard?
-Valuation metrics such as market capitalization, PE ratio, and forward PE ratio are used to compare the companies. The script suggests that Visa might be a slightly better deal in terms of valuation compared to MasterCard.
Why might an investor consider both Visa and MasterCard in their portfolio?
-An investor might consider both Visa and MasterCard in their portfolio due to their similar yet slightly differentiated performance metrics, robust business models, and the potential to benefit from the same growth vectors in the payments industry.
What is the significance of the dividend triangle in the analysis of Visa and MasterCard?
-The dividend triangle, which includes revenue growth, earnings growth, and dividend growth, is significant as it provides a holistic view of the company's financial health and growth potential over time.
How does the script address the comparison with American Express and Discovery?
-The script briefly compares Visa and MasterCard with American Express and Discovery, noting that the latter two carry consumer debt which introduces additional risk factors. It also points out that their dividend growth and overall financial performance have been less robust compared to Visa and MasterCard.
What is the final recommendation given in the script regarding the choice between Visa and MasterCard?
-The script concludes that both Visa and MasterCard are strong companies and could coexist in an investor's portfolio. If choosing one, an investor might consider MasterCard for slightly better financial performance or Visa for its market leadership and slightly cheaper valuation.
Outlines
๐ Disappointment in Visa's Earnings Report
The script begins with a discussion on Visa's recent earnings report, which was disappointing despite a 10% increase in revenue and a 12% rise in adjusted earnings. Key drivers showed growth in the single to double digits, yet the stock price dropped by nearly 4%. The video will compare Visa and MasterCard, analyzing their business models, growth potentials, and risks. It will also explore the use of the DSR stock comparison tool to determine which credit card company might be a better investment, considering American Express and Discovery as well.
๐ Analyzing the Business Models of Visa and MasterCard
This paragraph delves into the business models of Visa and MasterCard, highlighting their roles as payment processors. The companies are categorized as part of the financial sector, technology sector due to their focus on trust, security, and efficient money transfer, and consumer discretionary due to their reliance on consumer spending and travel. The script emphasizes their revenue model, which is based on charging merchants a fee for transactions, and discusses the growth vectors for these companies, including the global shift from cash to electronic payments and the additional fees from currency conversion during travel.
๐ Growth Vectors and Risks for Visa and MasterCard
The script outlines the growth vectors for Visa and MasterCard, including the global trend of reduced cash usage and increased electronic transactions, especially during travel. It also discusses the potential risks, such as the antitrust investigations and merchant dissatisfaction with the high fees charged by these companies. The script mentions Amazon's attempt to ban Visa transactions in the UK as an example of merchant pushback. Additionally, it touches on the reliance of these companies on a healthy economy for growth, as economic downturns can lead to reduced consumer spending and transaction volumes.
๐ Comparing Visa and MasterCard Using DSR Stock Comparison Tool
The script introduces the DSR stock comparison tool, which will be used to compare Visa, MasterCard, American Express, and Discovery. It provides an overview of the financial metrics for Visa and MasterCard, including revenue growth, earnings growth, and dividend growth over the past five years. The tool reveals that both companies have strong beta scores, indicating stability, and high dividend safety scores. The paragraph also discusses the slight differences in revenue and earnings growth rates between Visa and MasterCard, with MasterCard showing a modest advantage.
๐ค Evaluating the Market Position and Financial Performance
This paragraph discusses the market position of Visa and MasterCard, with Visa being the leader in payment transactions and MasterCard having a slightly higher PE ratio, indicating a steeper price for investors. The script also compares the dividend growth rates and valuation metrics, suggesting that Visa might be a slightly better deal in terms of valuation. It also touches on the debt structure of these companies, noting that they do not carry consumer debt, which is a positive factor during economic recessions.
๐ The Final Verdict on Visa vs. MasterCard
The script concludes by weighing the financial performance metrics and valuation of Visa and MasterCard. While MasterCard shows slightly better financial performance, Visa is considered a better value and market leader. The script suggests that both companies could be part of an investor's portfolio, but if choosing one, an investor might consider current performance metrics or valuation. It also mentions the historical performance of both companies, noting that MasterCard has had slightly better returns over the past five and ten years. The script invites viewers to share their preferences in the comments and encourages continued investment.
Mindmap
Keywords
๐กVisa
๐กMasterCard
๐กBusiness Model
๐กRevenue Growth
๐กEarnings
๐กDividend Growth
๐กMerchant Fees
๐กConsumer Discretionary
๐กDuopoly
๐กDividend Stocks Rock
๐กDebt
Highlights
Visa reported disappointing earnings with a 10% revenue increase and 12% adjusted earnings increase, leading to a nearly 4% stock price drop.
MasterCard's earnings are upcoming, raising the question of whether to invest in Visa, MasterCard, or another company.
Visa and MasterCard have identical business models as payment processors, straddling the financial, technology, and consumer discretionary sectors.
They make money by charging merchants fees for transactions, not by carrying consumer debt.
The growth of Visa and MasterCard is driven by the shift from cash to electronic payments, increased consumer spending, and travel.
Merchants are often forced to accept Visa and MasterCard due to their widespread use and recognition.
Visa and MasterCard's business model is considered excellent due to its predictability and recurring revenue from transaction fees.
The potential downside for these companies includes regulatory risks from antitrust laws and merchant dissatisfaction with fees.
Economic downturns can affect consumer spending, leading to fewer transactions and lower revenue for Visa and MasterCard.
MasterCard has shown slightly better revenue and earnings growth over the past five years compared to Visa.
Visa and MasterCard both have high Dividend Safety Scores and strong dividend growth, with MasterCard having a slight edge.
The dividend growth rate for MasterCard is nearly 18% over the past five years, while Visa's is about 17.7%.
MasterCard's stock has shown a nearly perfect dividend triangle over the past ten years, indicating stability and growth.
Visa is the market leader in payment transactions, processing more transactions than MasterCard.
MasterCard has a higher PE ratio and forward PE ratio, indicating a steeper price to pay for its shares compared to Visa.
Both Visa and MasterCard have high market caps, reflecting their significant positions in the payment processing industry.
American Express and Discovery Financial have different business models, carrying consumer debt and showing less stability in their dividend growth.
The presenter suggests that both Visa and MasterCard could be part of an investor's portfolio, but not as a single position.
MasterCard has historically outperformed Visa in terms of financial metrics and dividend growth, making it a compelling choice.
Transcripts
So Yesterday Visa reported disappointing
numbers actually so disappointing that
Revenue were up 10% adjusted earnings
was up 12% and all the key drivers were
either up I single digit to double digit
that is quite disappointing right and
then you're going to say about Mike that
doesn't make any sense you just told me
that it was disappointing well stock
price dropped by almost 4% on earnings
day and next week we're going to have
MasterCard reporting their earnings and
then the big question is should you buy
Visa should you buy Mastercard or is
there any difference between both so
today we're going to take a look at
their business model their growth
vectors their downside potential and
after that we are going to go into DSR
to use the stock comparison tool and see
which of those two companies or maybe
another one like American Express or
Discovery should be a better buy in the
credit card universe so when analyze a
stock I like to start by understanding
their business model and if you're not
able to explain the business model to a
12-year-old well then you have a pretty
solid sign that you are missing
something and you may make a big mistake
investing in this company so for visa
and MasterCard they have exactly the
same business model they are payment
processors so some people will say oh
they're in the financial sector because
they're endling money but we could also
argue that they are in the technology
sector because it's all about trust
security and transferring money
efficiently processing millions of
transaction all the time on one place to
another so they are also a technology
company and finally they could also be
categorized as a consumer discretionary
company because if the economy goes up
consumers spend money and if they spend
money they travel of course they're
going to use their credit card C and
this is how they make money they make
money on the fee they charge to the
merchant which is amazing business so a
lot of people think oh visa and
MasterCard has a big risk because they
carry on Consumer Debt well they don't
they partner up with banks and the banks
will have the debt on their balance
sheet while visa and MasterCard they're
simply like a toll road they're charging
whenever there's a transaction but they
are not responsible on the debt so if
the consumer is not paying at the end of
the month they don't care they made
their money by charging the merchant
that's it that's all so recurring money
it benefit from a huge mode because
everybody wants to use their credit card
to use their points now and then
Merchant has pretty much no other
choices but to offer both I remember
when I was young it was kind of
complicated to sometimes have a a
merchant that will accept Visa
Mastercard and American Express today
they're all pretty much forced to accept
all of those and it's relatively easy
especially for visa and for MasterCard
to get approved by Merchant because they
are known worldwide they are being used
everywhere and I just came back from a
trip in Iceland and at no time I needed
cash I only use my credit card which is
probably one of the most important
growth vectors for both companies once
again because they have like the same
business model they will grow because
people use less and less cash and they
want to transfer money electronically
with their card with their phone when
you're paying with your phone you're
actually paying with the credit card
that you have included in your phone so
it's always about the same system where
the charging fees and it's super easy to
predict that cash flow coming forward so
while the market was quite disappointed
by double digit growth we can see that
consumers are spending more they're
traveling more and when they're
traveling it's also generating even more
money from visa and MasterCard why
because then they change for currency
conversion so their most growth their
biggest growth vectors are people going
from cash to electronic or plastic
payment the fact that we consume more we
travel more and also that there are
those fees being charged on every single
transaction speaking of fees while this
makes them like one of the perfect
business model as they work in a duopoly
because all the other credit cards will
carry on to death for their customers
but we're going to talk about that later
on today um what is what is maybe the
biggest risk is also all the fees they
charge to Merchant um recently they were
almost about to close an Intrust uh
investigation while they were offering
some like to lower the fees and so on
but the doj's were just like yeah no
that's going to cut it so we're going to
keep on investigating and we're going to
stick working on that so Merchants are
tired for the fees there are antitrust
laws that are going after also the fact
that they are duopoly and all Merchant
are pretty much stuck with them even
Amazon tried a few years ago to ban Visa
transaction in the UK that kind of last
like maybe like a week or 10 days and
then they went back on the negotiation
table so we can see that there is a
Feeling of merchant being upset about
those fees but it is very hard to get
outside of that so that would be a
Slowdown on their growth going forward
um of course they are depending on the
economy so whenever the consumer sees
their budget tightening they will travel
less they will buy stuff they will be
buy less stuff and therefore less volume
less transaction and that will lead to
lower Vol lower revenue and lower
earnings but in the end those are like
pretty small downsides so when I look at
both visa and MasterCard they show an
amazing business model well protected by
the duopoly by the network effect and
the fact that it is a scaling business
so they benefit from the economy's scale
and tomorrow morning if I try to start a
transactional business well it will be
very hard for me to benefit from the
recognition of the brand so Merchant
will not likely want to approve my
credit card so imagine like the DSR
credit card that would be cool right but
probably not going to happen I don't
have the mean I don't have the
technology and I don't have the brand
recognition so solid moti business so is
there a difference between visa and
MasterCard well to answer that question
from the qualitative analysis that I
just made there's not much different so
now we're going to look into the numbers
to see if we can pick up a clear winner
and to do that we're going to use DS R
stock comparison tool so here we are on
my membership website dividend stocks
rock where all DSR Pro members have
access to one of the most powerful tool
to compare more than one stock together
it is the stock Unison tool right here
so the stock on Prison tool is quite
easy to use you can load a pre-selection
but today we're going to go directly to
look at
MasterCard and we're also going to add
visa to demand next to see if we can
find a business that has better numbers
um so for the overview while both are in
the financial sector both are in the
credit services as I told you before I
would qualif qu classify both companies
as oneir Financial onethird technology
and onethird uh consumer discretionary
because it really depends on how much
consumers want to spend with their card
um the beta is pretty similar so this
one is slightly more volatile than visa
for MasterCard but not more not not
enough to make a difference in terms of
pro rating and dividend safety score
they have the maximum at DSR both of
them are amazing and we're going to see
why when you look at the dividend
triangle right here we have Revenue
growth over the past five years so this
is a annualized growth rate of almost
11% for MasterCard almost 10% for Visa
so slight Advantage for MasterCard here
for the earnings we have a
similar uh Advantage again so 16% for
Master Card over the past 5 years
13.38 for Visa so again pretty solid
business growing double digit their
revenue and also double digit their
earnings and the fact that earnings are
growing a little bit faster than Revenue
tells us that there are there is room
for margin expansion which is kind of
great because this is what we like as an
investor we want a business that is able
to grow their sales grow their profit
but also show that they are endson on
their margin and this will obviously
reflect to the third metric of the
dividend triangle so the dividend growth
almost 18% over the past 5 years for
MasterCard and almost 177% for Visa so
at this point I would say both
businesses have a almost copy based
business model so same risk same growth
vectors the numbers of the dividend
triangle is slightly better for
MasterCard so if I stop my analysis
right now I would be tempted to put my
$2 on MasterCard but let's dig further
to see if there's any other points of
comparison that could be interesting uh
one thing that I really like to do is to
look at the overall trend because it's
one thing to have the numbers but it's
even better if you can look at the trend
that will tell you a little bit more
about what's going on so we're going to
take a quick look at their stock cards
right away so now we are on MasterCard
what I want to see here is how the
dividend triangle is moving so as you
can see here we have Revenue that are
quite stable and we see that there's a
bit of a Down of course during the
pandemic that is also followed by the
same down the same slowdown for the
earnings again due to the same event but
that didn't impact their dividend growth
rate at all so overall uh we are looking
here at a nearly perfect dividend
triangle over the past not 5 years but
rather 10 years which is quite
impressive so let's take a look at Visa
just to see if there is a difference
between MasterCard and Visa at this
point so going back again for the
dividend triangle we have the same dip
in 20 2020 to 2021 for the revenue and
the earnings but for the rest of it
again we do have a pretty straight line
um a little bit shaky you're here for
the earnings back in 2017 20 uh 2016
maybe it would be worth it to go back in
time to look at what happened but over
the past five years it's pretty shooting
towards the right direction for both
businesses so going back to the stock
comparison so we're done with the
overview we're done with the dividend
triangle and we have a slight winner so
far for MasterCard um in terms of
dividend metrics uh the Yi is pretty
similar slightly advantage on Visa but
again it's not necessarily moving the
needle in my opinion same thing for the
payout ratio so we have a cash payout
ratio of 20% for MasterCard 22 for visa
and then we have 21 for the cash payout
ratio and then 20 for Visa so again
pretty much head-to-head in terms of
metrics we can see also the dividend
growth rate uh over the past one three
and five years similar so we see that
over the past 3 years it's a little bit
better for Visa but for the past 5 years
it's better for MasterCard so again very
hard to find a winner here for the
Childer score which is the uh dividend
grow rate for the past five years plus
the dividend yield we are also having a
better performance for MasterCard again
18.5 versus
17.7 so pretty close but just a little
bit for MasterCard once again and full
disclaimer it's kind of funny to do this
comparison chart because I hold shares
of visa and I do not hold shares of
MasterCard so maybe I should start
thinking about making the change right
well one last step before we go to the
conclusion before we take a look at
American Express and Discovery just to
end up this video on a nice note uh I
just wanted to look at the valuation
metrics so valuation metrics in terms of
market cap we do have a winner here
where Visa is the leader in terms of
market capitalization but it also uh has
more Merchant process more transaction
so they are the leader in payment
transaction and Visa is the second one
in place uh not a bad position as you
can see it shows better metrics maybe
that explains why it's able to grow a
little bit faster so being the
Challenger sometimes will push the
business to be a little bit more
Innovative while Visa can just come
laidback and uh just keep that edge over
time and in terms of payout R in terms
of PE ratio what we have here well as
MasterCard as outperformed visa for the
dividend triangle it also reflects that
you have to pay a steeper price so the
PE Ratio is higher the forward p ratio
is higher and when you compare it to the
average of the past five years um we do
see that everything is a little bit
higher for MasterCard so in terms of
evaluation I would say that probably
that Visa is slightly a better deal than
MasterCard um so on the metric side we
do have a better financial performance
on V for MasterCard on the valuation
slightly better performance for Visa but
overall there's not a huge deal here
both companies trade at a high p ratio
but compared to their average they're
still offering some an interesting entry
point at this point where on average
over the past 5 years the market was
willing to pay almost 42 times the
earnings right now paying 30 five times
with a p forward p ratio under 30 and
same story here where the average at 36
the current p ratio is at 33 and the
forward per ratio is at around 25 so
once again the market is being a little
bit less right now for the earnings than
it was in the past so now moving on to
the debt structure well of course as I
told you before both companies do not
carry the consumer's debt on their
balance sheet so it's not a a risk and
it's a pretty good thing because when we
have a recession they will not have to
deal with collection with their
customers in terms of debt to equity
ratio we see that MasterCard has more
debt and Equity than Visa but it's more
about how they structured the business
it's not necessarily a bad thing it's
just to understand that MasterCard is
using a little bit more debt than using
shares to finance their activities while
it's the opposite for Visa um in terms
of the current PE ratio the credit score
were slightly better on Visa side so
once again we have like slight Advantage
but so far it's really really hard to
create a winner in the side of a winner
so before I get to that winner because I
do have one in mind I'm just want to go
back here and look at the financial
metrics especially the dividend triangle
by looking at American
Express so you can see that we have a
lot of companies right here so we're
going to add American Express and we're
going to add discovery which is really
important for those two they do have the
debt on their balance sheet so it is a
little bit uh it's it's another risk
factor that visa and MasterCard doesn't
have to deal with where American Express
and discover Financial will have to Care
on the debt so so far they have not been
affected as you can see for the dividend
triangle we do have pretty solid numbers
so Revenue growth at 8% earnings per
share at seven the dividend 10 to 12% %
so that is pretty good numbers but
they're not as good as MasterCard and
visa and when we look at their stock
cards and this is where I'm willing to
discard both of them if I have to make a
choice it is going a lot like you can
see that the earnings and the revenue
got affected a lot more during the
pandemic and that also created a pause
in their dividend growth policy if we
look at Discovery we are going to have a
similar result actually even worse right
now we see that earnings are going down
it's the only company where the earnings
are going down while the other three are
keeps on rocking the boat and again they
have to pause their dividend growth
policy during the covid and it's normal
because they are subject to any
recession they will be affected by those
for for those Reasons I'm ready to take
those one out and just focus on Visa and
MasterCard if you wi this far this video
and you are interesting in interested in
finding companies like visa and
MasterCard that has a low yield but a
high dividend growth rate well I do have
the perfect guide for you to build your
entire portfolio around this strategy
and it is called dividend income for
Life the guide is 100% free you just
have to key in your email you will
receive it in your mailbox uh that is my
way to communicate with you and send you
even more resources CU we do have have a
secret Resource page with a lot more
resource that can help you become a
better investor grow your conviction and
have kind of like a mind map here where
to know how to build a low yield high
growth type of thought type of portfolio
that will do not only good during your
accumulation phase but will actually be
better in the retirement phase and in
the guide I explain you why focusing on
high yield is a lot riskier here and
could put your your retirement into J
party versus looking at the low yeld
High gr stocks will sustain the dividend
payment that you need and generate
enough revenue for you to retire
stressfree so just go on dividend
stock.com
income download the report and you can
thank me later so overall to end up this
epic battle between an amazing company
and an amazing company I would say that
there are a few things that you can
decide to pick one or the other and I
would like end it up saying both of them
could be in your portfolio but do not I
would count them as only one position so
if you would like to have a 4% position
in a company like this I would go 2%
MasterCard to Visa but if you really
want to have only one stock in your
portfolio you can use the following
criteria to make your decision so if you
want to pick the one that is performing
the best best right now in terms of
financial metrics and looking at the
dividend triangle MasterCard is a clear
winner so slightly better for Revenue
growth slightly better for earnings and
slightly better for dividend while if
you're better everywhere this is called
performance on the other side Visa
trades at a cheaper value and is the
leader in the market personally I prefer
to buy leaders uh but it's just to give
me a nishal sense of conviction and
confidence in the business
again both companies looks great I'm
super happy with my chose with Visa but
MasterCard could have been a pretty
solid performer in my portfolio as well
and if I look at the past five and 10
years well the choice would have been
better off with Master cards I have to
tell you past historical returns both
are crazy but MasterCard still a little
bit ahead of the other two so that
concludes my epic battle I'm happy with
Visa but you could be happy with
MasterCard and if you if you want to
have both well just split your position
in two and then it's a done deal let me
know in the comment which one you have
and ironically I use MasterCard as a
credit card but I do not use at Visa I
just keep it in my portfolio so let me
know which is your favorite credit card
company and we're going to continue this
discussion in the comments below all
right guys take good care don't forget
to like the channel subscribe and we're
going to talk again next Thursday until
then don't forget to stay invested
Browse More Related Video
Visa & Mastercard Continue To Dominate | Joseph Carlson Ep. 343
Is American Express Stock a Buy Now!? | American Express (AXP) Stock Analysis! |
Has the Nvidia (NVDA) and SMCI Bubble Burst?
1 AรรO PARA SETEMBRO DE 2024
Tesla Stock is Crashing - Here's Everything You Need to Know
Intel vs AMD: Which Stock is a Better Buy Today?
5.0 / 5 (0 votes)