Neither of these contestants needs any introduction, because it's probable that they're on your person at this very moment. Most Americans at this point have Visa (V 0.65%) or Mastercard (MA 1.33%) payment cards in their wallets, typically at least one of each.
With that ubiquity, you can easily imagine the reach and power these companies have not only in our country, but around the world. This, then, is a clash of giants. Which has the better potential to help supersize your portfolio?
Image source: Getty Images.
Plastic and digits, not paper and metal
You can't hear the combat noise and explosions, but there is a war on cash going on now. And guess who's winning? According to a study by research company Euromonitor, in 2016 the amount of payments effected by noncash instruments exceeded traditional cash buys for the first time in history.
There will be no going back. Who wants to comb through bills and wait for change these days when we can just whip out a card or a smartphone?
Point-of-service terminals are now such a default at the world's cash registers that it's rare to ask "Does this store take cards?" The two companies are in an excellent position to take advantage of this due to their one-two dominance in the card sphere. What gets a bit less notice is that the pair are also very active in the latest digital payment technology.
This is a primary reason why Mastercard and Visa have been posting some impressive, double-digit growth rates over the past few years. Here's the tale of the tape from their most recently reported quarters:
| Card | Payment Volume (in billions) |
YOY Growth |
Net Revenue (in billions) | YOY Growth | Net Profit (in billions) | YOY Growth | Margin |
|---|---|---|---|---|---|---|---|
| Mastercard | $1,090 | 12% | $3.9 | 9% | $1.9 | 25% | 49% |
| Visa | $2,197 | 7% | $5.5 | 8% | $3.0 | 14% | 55% |
Sources: Mastercard and Visa. Chart by author. YOY = year over year.
This shows how profitable and generally successful both have been. Of the two, though, it's No. 2 -- Mastercard -- that's been posting the better growth figures recently.
Mastercard feels that one path for its continued success is cross-border payments, the obscure (to people who aren't card-industry nerds) yet lucrative international transactions that span the world. The company has been posting impressive numbers in this activity lately, much more so than its rival. Additionally, Mastercard has found a solid niche in services; again it's done well in this area recently, and it will probably continue to do so.
So does that mean the company is the winner in our contest? Not necessarily. Let's quickly check the valuations.
High values
Here's a look at how Mastercard and Visa are valued according to their most recent share prices. Since both pay dividends, we can throw in dividend yield, too:
| Card | Price Per Share | Trailing P/E | Forward P/E | 5-Year Forward PEG Ratio | Dividend Yield |
|---|---|---|---|---|---|
| Mastercard | $250.57 | 41.8 | 27.9 | 1.7 | 0.5% |
| Visa | $162.84 | 33.7 | 26.2 | 1.9 | 0.6% |
Source: Yahoo! Finance. Chart by author. P/E = price-to-earnings ratio. PEG = price/earnings-to-growth ratio.
Most of these key scores are close -- I'm thinking in particular of the PEG ratio, which shows how high a stock's current trailing price-to-earnings ratio is compared to analysts' outlook (over 1 means it's currently being valued at a premium). Also, the above fundamentals give an edge to Mastercard, but to me only an edge and not a clear advantage.
So we have to make our decision by considering the respective business models.
I feel Mastercard has been the more innovative of the two -- particularly in regard to cross-border payments, it still seems like the leader, with Visa trying hard to catch up. I think this initiative helps demonstrate that Mastercard has a better read of the current payments landscape, and therefore has the better chance to capitalize on it.
Visa is a monster and will likely remain No. 1 just because of its sheer size and its ability to turn a solid profit and post growth. Nevertheless, at the moment, No. 2 is hungry, motivated, and more cleverly opportunistic. So in this contest, I'm picking Mastercard.
