The payment network world is essentially a duopoly between Visa (V 0.77%) and Mastercard (MA 1.04%). They facilitate hundreds of billions of transactions annually, totaling well into the trillions, underscoring their importance to the global financial system.
Visa and Mastercard's stocks have struggled this year -- down 7.2% and 11%, respectively, year to date through market close on May 8 -- but that doesn't take away from their long-term appeal. Both companies are built to thrive long term, but which is the better stock right now? Let's take a look.
Image source: The Motley Fool.
Recent financial performances
Both companies have delivered strong financial performances in their most recent quarters, but in different areas. With Visa, you're getting larger scale and faster revenue growth. With Mastercard, you're getting faster earnings growth:
| Metric | Visa Year-Over-Year Growth | Mastercard Year-Over-Year Growth |
|---|---|---|
| Revenue | 17% | 16% |
| Non-GAAP net income | 17% | 20% |
| Non-GAAP diluted EPS | 20% | 23% |
Sources: Visa and Mastercard earnings reports.
Value-added services (VAS) -- which include services like data analytics, fraud prevention, and consulting -- were a bright spot for both companies. Visa's and Mastercard's VAS increased 27% and 22% year over year, respectively. This is a sign that they're diversifying their business models and becoming less reliant on just transactions.
Cross-border payments also continued to grow for both companies, which is a major source of profit because they typically earn more per transaction. This is a high-margin segment with plenty of growth opportunities as international travel and digital payments expand globally.
NYSE: V
Key Data Points
Approach to stablecoins
Stablecoins are digital assets designed to maintain a stable value relative to an asset such as the U.S. dollar. Over the past couple of years, they have grown from a relative niche to large-scale use cases. As major payment networks, Visa and Mastercard have been open about the importance of stablecoins to their long-term growth strategies. However, they're approaching them a bit differently.
Visa CEO Ryan McInerney said Visa wants to establish its role as a "key interoperability layer between this powerful infrastructure and real-world solutions for users." Simply put, Visa wants to act as a middleman to help stablecoins interact smoothly with traditional financial systems.
Mastercard CEO Michael Miebach noted that Mastercard's planned $1.8 billion acquisition of BVNK (a stablecoin infrastructure provider) will be key to expanding its stablecoin solutions and capabilities. Instead of focusing on being a middleman, Mastercard is trying to build its own foundation.
NYSE: MA
Key Data Points
Which is the better stock right now?
Right now, I would prefer Visa's stock because of the company's scale (and how that plays into the network effect), financial strength, growth rate, and lower valuation.
Scale works in Visa's favor since potential cardholders and merchants are more inclined to choose it because it's widely accepted; has a better long-term debt position compared to capital; is growing revenue and earnings at a similar rate, even with its larger size; and is currently valued less when looking at its price compared to projected earnings over the next 12 months.
Both stocks are worthwhile (even Berkshire Hathaway owns shares in both). But Visa is a much more trustworthy long-term choice in my opinion.
