Growth stocks can be some of the most exciting picks in the market. Figuring out how long the growth will last is the investors' challenge. High-growth companies often decline quickly when business slows, and that's a ride none of us wants to be on.
Mastercard charges ahead
Mastercard may be well-positioned for more fast growth. The financial transactions company saw earnings per share grow 41% last year, while 2019 EPS estimates come in at 18.5%.
Operationally, Mastercard's performance is strong. Volume growth is expanding, and its long-term potential shows no signs of fatigue. It continues to earn business by creating value for clients.
With the third-quarter earnings release on Oct. 29, CEO Ajay Banga said, "We delivered another quarter of solid revenue and earnings growth as we execute on our strategy and invest for the long term."
Mastercard said earnings for the third quarter totaled $2.1 billion, or $2.07 a share, versus $1.9 billion, or $1.82 a share, a year ago. Wall Street had been expecting earnings of $2.01 a share.
Revenue came in at $4.5 billion, up from $3.9 billion a year ago and beating Wall Street's forecast of $4.42 billion.
This fall, Mastercard partnered with rivals Visa, American Express, and Discover Financial Services to compete with PayPal and Apple Pay by introducing an online "click to pay" option. It stores your payment information in one place, simplifying transactions -- no more entering 16-digit credit card numbers on every website you buy from.
The 2019 holiday season is seeing record amounts of online purchases. As more businesses and consumers seek speed and security online and use "click to pay," higher transactions for Mastercard will be the happy result.
Once a pipsqueak, PayPal now leads
PayPal is a leader in the evolution of digital payments and is the largest platform providing money transfer services.
It was once part of eBay, but at the behest of activist investor and major stockholder Carl Icahn, the companies were split in 2014. Since then, it has bought payment processors Venmo, Xoom, and Braintree, and made a $500 million investment in Uber, hoping to lead payment processing in ridesharing.
Third-quarter results, released Oct. 23, were great. Wall Street expected $0.52 in EPS, but PayPal reported $0.61. Revenue came in at $4.38 billion, $30 million higher than estimates. Total payment volume jumped 27% higher than a year earlier to $179 billion, also higher than Wall Street expectations.
Venmo, the company's mobile payment app, is registering impressive growth. It processed more than $27 billion in payments during the third quarter with a 64% increase in payment volume.
What will PayPal do for its next act? It has the potential to be very big:
"This quarter, we announced that we will be the first foreign payments platform to be licensed to provide online payment services in China, a very significant development that has the potential to meaningfully expand our addressable market," CEO Dan Schulman said.
Difficulties in China have been amply illustrated by the 2019 U.S.-China trade war. But getting licensed as the first foreign online payments platform is a huge step toward realizing the growth potential China presents.
The better investment
Both Mastercard and PayPal are growing, have great management, and are stepping up with innovative approaches in the global digital payments sector. It's like trying to choose a favorite child.
Mastercard's "click to pay" partnership will pay off well, as more and more consumers understand the ease and benefits of better protecting their payment information. And Mastercard will pay you a small dividend to wait.
PayPal's strategic acquisitions and moves have been winners, with the possible exception of the Uber investment, where the jury is still out. And the opportunity in China can hardly be overstated, though the timeline is uncertain.
As much as I hate to do it, I'm going to declare a tie. Either (or both) would be a great investment, especially if you're a long-term investor. I'm planning to add PayPal and Mastercard to my portfolio soon.