Earnings season hasn’t been kind to Visa [V] and Mastercard’s [MA] share prices as a slower-than-expected growth forecast from Visa weighed on both stocks. Yet there are a couple of reasons to consider picking up shares in the credit card giants on the dip.
First, both companies are still in recovery mode after the pandemic hit consumer spending, with Visa and Mastercard’s share prices trading around their February 2020 levels. Second, both have launched various initiatives to capitalise on the emergence of crypto in mainstream financial services.
To boot, Visa and Mastercard’s share prices have average analyst price targets that would see an upside of around 30% if hit.
Visa and Mastercard’s share prices tank despite earnings beat
Visa’s share price tumbled 8.6% last week (through 29 October), despite beating Wall Street’s top and bottom line expectations.
Visa's share price fall last week, despite beating Q3 earnings expectations
In results for the fiscal fourth quarter 2021 posted Tuesday, Visa reported adjusted earnings of $1.62 a share versus an expected $1.54 a share. Revenue came in at $6.56bn beating the expected $6.53bn. Visa also announced it was upping its dividend by 17%.
So why the drop in Visa’s share price after a decent earnings beat? The Motley Fool’s Rich Smith puts it down to guidance. Smith points out that Visa stated in its earnings call that it expects ‘high teens’ net revenue growth in the fiscal first quarter. And while that sounds pretty good, it would in fact represent a ‘marked deceleration from the 29% revenue growth that Visa enjoyed in Q4’. Smith also notes that it would also be ‘a huge step down from the $6.95 billion’ analysts have been forecasting for Q1’.
Visa’s slower-than-expected growth forecast dragged down Mastercard’s share price, with the rival credit card provider's stock down 6.5% last week. When Mastercard eventually posted its earnings on Thursday after the bell, it reported earnings of $2.37 a share beating an expected $2.19 a share. Revenue came in at $5bn, topping the $4.95bn Wall Street was expecting. Like Visa, Mastercard saw a growth in cross-border spending which it said had returned to pre-pandemic levels.
Both Mastercard and Visa’s share prices closed slightly higher on Friday following the Mastercard results, but still heavily down on the week.
Could crypto boost Mastercard and Visa’s share prices?
Beyond the mixed earning results, Visa and Mastercard’s share prices could get a post-earnings boost from their forays into cryptocurrency.
Both have officially declared moves into cryptocurrency. Mastercard is planning a move into crypto services with crypto firm Bakkt, a partnership that caused Mastercard's share price to rocket last week.
Banks and merchants using Mastercard’s payment network would be able to integrate cryptocurrencies into their products. This includes credit and debit cards that earn loyalty rewards that can then be used to purchase digital assets.
The service promises to fundamentally reshape the landscape of cryptocurrency, including how people earn and spend it.
“We want to offer all of our partners the ability to more easily add crypto services to whatever it is they’re doing,” Sherri Haymond, Mastercard’s executive vice president of digital partnerships, said in an interview.
Mastercard also namechecked its acquisition of Ciphertrace during its earnings results. The service helps customers enhance their security and fraud monitoring activities for crypto-related programs.
Visa is also launching an NFT program to support digital artists. The credit-card company is partnering with ex-Major League baseball player turned NFT artist Micah Johnson to build a program that helps artists sell their work as NTFs. While it's easy to dismiss NTFs as a fad, the market saw $10bn in sales volumes during the third quarter, according to industry publication Coindesk.
Both Visa and Mastercard have also invested in credit-card start-up Deserve. Customers using Deserve’s Visa card get 1.5% back in Bitcoin on every purchase. Bloomberg reports that since launch the card has seen a whopping $2 billion in annualised transaction volume.
Can Visa and Mastercard hit predicted 30% upside?
Will crypto affect the trajectory of either company’s share price after they announce their earnings this week? That depends on the size and scope of any plans announced.
Cryptocurrency is increasingly entering the mainstream - Hollywood A-lister Matt Damon has even appeared in a commercial hawking cryptocurrency platform cypto.com. The first bitcoin ETF futures were launched in the US last month, banks are offering cryptocurrency as a way to store value for investors and the price of Bitcoin is trading around an all-time high.
Visa and Mastercard’s recent foray into the area could simply be put down to the inevitable.
However, crypto is still not an answer to the lingering effects on the credit card businesses of the pandemic. Visa’s slower-than-expected guidance for the current quarter has dragged down Mastercard’s share price. Investors would need to take a view on whether now provides a buying opportunity as the global economy begins to recover - especially with cross-border travel still in recovery mode.
The consensus from the analysts is that there’s plenty of upside in both stocks. Visa’s share price has a $276.21 price target - hitting this would see a near 31% upside on Friday’s closing price. Mastercard’s share price has a $434.02 target, suggesting a 29% upside. Both stocks have a consensus Buy rating from analysts.
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