The outbreak of the deadly coronavirus triggered global supply chain disruptions and hit markets, affecting most companies, such as Apple, Nike and United Airlines, have already warned about the impact of COVID-19 on revenue. However, few expected that on this wave it is possible that shares of Mastercard and Visa fell in price, since the world’s largest payment providers provide contactless and remote payments, which is especially relevant and in demand in the context of the coronavirus pandemic.
However, the last 2 weeks have shown that Mastercard and Visa, due to their influence on international travel in the near future, both companies maintain very strong credit profiles. When the initial outbreak of coronavirus was mainly limited to China, it was expected that the potential impact on Mastercard and Visa would be relatively small due to the limited presence of companies in the domestic market of China. Nevertheless, since the virus has recently spread widely to other countries, its negative impact on international travel has intensified.
The international travel sector plays an important role for Mastercard and Visa, as cross-border fees and transaction revenue account for a significant portion of the total revenue of both companies. This contribution is estimated at approximately 30-40% of total revenue. This is why it is so unexpected for many shares of Mastercard and Visa fell in price.
- From the last decade of February to March 9, about 16% fall in the value of shares.
The international payment system MasterCard from the state of New York, USA, founded in 1966, unites financial institutions in 210 countries of the world. The main business is the processing of payments between acquiring banks serving retail outlets, issuing banks or credit cooperatives. The corporation is involved in the development of microprocessor card technologies, as well as in the promotion of cards as a secure payment tool in the e-commerce market.
In February, Mastercard announced that, due to the spread of coronavirus, the company may not reach the previously planned revenue figures for the current year, according to the new forecast, revenue growth may reach 9-10% in annual terms, which is 2-3 percentage points lower than the previous forecast. The company indicated that coronavirus has an impact on the overseas travel sector and the growth of cross-border e-commerce.
- Many experts, from a credit point of view, believe that revising the forecast for Mastercard revenue is quite modest. In fact, if the outbreak is sustained, there may be a larger impact on income and profits.
On the other hand, Mastercard securities fell to attractive levels for buying, despite the fact that the US financial services market is still maintaining positive dynamics, a deep correction has formed in the US stock markets, and the company’s debt burden is low.
- Shares of Visa – an American payment operator from the last decade of February to March 9 showed about 20% fall.
For the same reasons as its main competitor, Visa shares lost in value due to travel restrictions with a large share of the company’s revenues from foreign transactions.
At the same time, as a result of a deep correction of the American stock market, Visa shares regained support. Against the backdrop of a discussion of monetary and fiscal stimulus measures in the leading countries of the world, paper may demonstrate another growth trend.
Payment systems will still rise in price
Both companies have significant financial flexibility and can change their capital allocation strategy to maintain their credit indicators, if necessary. Despite the fact that shares of Mastercard and Visa fell in price in recent weeks, before that, for the last three years they have mostly only risen in value, and showed the maximum growth in 2019 – by 41% and 57.4%, respectively. The growth of quotes of payment systems was caused not only by investor interest in the performance of these companies, but also by the growth of the US stock market as a whole.
Mastercard shares rose in average price by 41.5% over three years, and Visa securities – by 33%. And if we assume that in the next three years the average annual increase in the share prices of these two companies will be approximately the same as the previous three years, then the companies have good chances of achieving a value of $ 1 trillion in 3 years. Then in the trillion race, Visa and Mastercard will be able to get ahead of Facebook and Berkshire Hathaway, who are now following the leaders.
Investors’ interest in payment system assets is quite natural. The boom of online shopping and cashless transactions cannot but contribute to the growth of revenue and profit of payment systems. Since 2010, the share of consumers paying with plastic cards for their purchases has increased from about 28% to 45%. Payment systems have long become intermediaries between consumers and banks, and in the context of the coronavirus pandemic, remote cashless and contactless payments become especially relevant, therefore, although shares of Mastercard and Visa fell in price over the past two weeks. Their prospects look very rosy.
Visa has now reached 60% of the debit and credit card market, followed by Mastercard with a 30% share. Not surprisingly, both Visa and Mastercard have doubled revenue over the past five years. Twice as much profit came to shareholders and securities of both payment systems. According to Wedbush experts, in 2020 the hype around the shares of payment systems will continue.