Plastic card companies could follow the footsteps of large United States based tech giants in becoming $1 trillion companies in terms of stock value.
Share prices of credit and debit card companies Visa Inc and Mastercard Inc have gained about 50 per cent over the last year and are ranked 7th and 11th among companies in the benchmark S&P 500 index currently.
Both the companies are expected to cross the $1 trillion mark by 2023, say analysts even though their share prices might not hold up the significant upswing that it has so far in the past year. This prediction is based on the average annual gains that the stocks of the companies have made in the last three years and assuming that such a surge continues. That would take the companies past companies like Facebook Inc and Berkshire Hathaway Inc if those companies also maintain their current rate of growth at the stock market.
An increasing consumer shift in favour of cashless financial transactions primarily driven by online shopping is the major factor that will propel the market value of Visa and Mastercard, said analysts.
“Everything travels on their rails,” said Sandy Villere, portfolio manager of the Villere Balanced Fund, which holds Visa shares. “They literally sit in the middle of the banks, consumers and merchants and that has been a really enviable place to be.”
As of close of markets in the US on Thursday, the market value of Visa was at $449 billion and that of Mastercard was at about $324 billion.
Currently Apple Inc, Microsoft and Google-parent Alphabet are in the $1 trillion clubof companies.
Currently the market value of Amazon.com is at $927 billion even though the company’s share rose on Thursday after the bell after the company reported better than expected quarterly results. The company had briefly crossed the $1 trillion mark in September 2018.
According to Refinitiv data, over the last five years, both Visa and Mastercard have doubled their revenues with Visa at about $23 billion and Mastercard at about $17 billion. Over the same period, both the companies have also more than doubled their adjusted earnings per share.
And as for the latest quarter, while Mastercard beat quarterly profit estimates, Visa narrowly missed estimates of the market.
According to Lisa Ellis, senior analyst at MoffettNathanson, one or the other digital forms of payment is used for making purchases by about 43 per cent of consumer purchases all around the world not including Chin last year which was a significant increase compared to the 28 per cent in 2010.
“Globally, we still have five to 10 years, at least, to go of penetration,” Ellis said.
About 60 per cent of the credit and debit card market is dominated by Visa while about 30 per cent of the market is commanded by Mastercard according to Ellis. The third position in the market is accorded to American Express which has a market share of just about 8.5 per cent.
(Adapted from Reuters.com)