Few companies have a more dominant duopoly in their industry than Visa (V 0.32%) and Mastercard (MA 0.45%). Yes, Discover and American Express are popular card issuers in the U.S. But they only issue cards managed by their own bank, as opposed to Visa and Mastercard, which only brand cards and have a payment network. This makes them less risky, as they don't have lending arms to manage.

While their businesses are similar, Visa and Mastercard dominate slightly different niches, even though both cards are widely used. So which stock has the potential for the best 2023?

Visa's U.S. concentration benefited the company in Q3

Looking at their performance in 2022, both companies have done an excellent job in maintaining their value despite a downward trending market, with Visa down 3.7% versus Mastercard's 2.9% loss. It isn't uncommon for these businesses to trade in near-lockstep, as they are similar. However, Mastercard has significantly outperformed Visa over the past five years, even though both have been fantastic investments.

Chart showing the total returns of Visa and Mastercard beating the S&P 500 and Nasdaq Composite in 2022.

Visa Total Return Level data by YCharts

With the strength these stocks have displayed in 2022, you'd likely expect the businesses did well, and you'd be correct.

During each company's last earnings period, both posted strong results.

Company  Net Revenue Net Revenue Growth YOY EPS EPS Growth YOY
Visa $7.8 billion 19% $1.86 13%
Mastercard $5.8 billion 15% $2.58 6%

Data source: Visa and Mastercard. YOY: Year-over-Year. Note: Visa reported Q4 FY 2022 earnings ending Sept. 30, and Mastercard reported Q3 earnings ending Sept. 30.

A critical insight into why Visa beats Mastercard in revenue growth comes from where the companies get most of their revenue.

Company U.S. Payment Volume U.S. Payment Volume Growth International Payment Volume International Payment Volume Growth
Visa $1.479 trillion 11.6% $1.450 trillion (0.5%)
Mastercard $0.683 trillion 10.5% $1.386 trillion 0.8%

Data source: Visa and Mastercard.

Because Visa has a larger market share in the U.S., it had stronger revenue growth due to growing spending (which flies in the face of the notion of a recession, but more on that later). On the flip side, Mastercard is more exposed internationally, which didn't bode well in the third quarter.

So whether you choose one stock or the other for 2023, it boils down to how strong the U.S. consumer will be. But one of the CFOs has a bold proclamation that investors must hear.

Both stocks are currently trading at historically cheap prices

In Visa's fourth-quarter earnings call, CFO Vasant Prabhu made an incredible statement: "For internal planning purposes, we are assuming no recession." Visa is so confident in the consumer's strength that it goes against the prevailing notion of an imminent recession. Ironically, the word "recession" wasn't uttered on Mastercard's Q3 earnings call, so that company isn't very concerned about it either.

For each company's next fiscal year (remember, Visa's ends in September, whereas Mastercard's ends in December), Wall Street analysts project Visa will grow revenue by 12.1% and Mastercard will grow by 13%. So, the consensus is that both companies will grow faster than the market average, a good sign for investors.

With Mastercard projected to edge out Visa in growth, it's likely a sign that these analysts believe the international growth will be slightly greater than U.S. growth.

As for which stock is cheaper, they both fetch a premium compared to the market.

Charts showing Visa's and Mastercard's PE ratios falling in 2022.

V PE Ratio data by YCharts

Compared to the S&P 500's price-to-earnings ratio of 20.4, these two are pretty expensive. However, because of each company's strong execution and incredible business model, they have long traded at a premium to the market and still done well as an investment. However, both stocks are trading at the lower end of their usual range, making them seem like bargains.

Visa still seems like the better option, as it's valued lower and growing faster. However, the long-term tailwinds of Mastercard's international exposure will likely allow it to beat Visa over the long term, because more growth is available outside the U.S. borders.

Still, many investors (like me) own both companies for a good reason: Visa and Mastercard give exposure to different areas. I think both are worthy investments, although Visa looks more attractive currently.