Choose your fighter: Visa 🆚 Mastercard
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Visa and Mastercard are two of the best companies in the world.
Together, they dominate the entire digital payment industry.
But if you could only choose one, which one would you pick? Let’s find out.
The essentials:
You can find the essentials of Visa here:
And the essentials of Mastercard here:
Visa has a market cap of $513 billion while Mastercard is worth $422 billion.
Visa can be seen as the larger, more established company while Mastercard has more growth potential.
You can read the Not So Deep Dive of Visa here and the Not So Deep Dive of Mastercard here.
1. Balance Sheet
We love to invest in companies with a healthy balance sheet.
Visa has a healthier balance sheet than Mastercard
Score Visa - Mastercard: 1-0
2. Capital Intensity
The less capital a company needs, the better.
Mastercard requires less capital than Visa
Score Visa - Mastercard: 1-1
3. Capital Allocation
Capital allocation is the most important task of management.
Look for companies that put the money of shareholders to work at attractive rates of return.
Here’s a comparison of both companies’ ROIC via Finchat:
Source: Finchat
Mastercard has better capital allocation metrics
Score Visa - Mastercard: 1-2
4. Profitability
The higher the profitability of the company, the better.
Here’s what things look like for both companies:
Both companies translate (almost) 50% of their revenue into Net Income.
That’s phenomenal!
Visa is more profitable than Mastercard
Score Visa - Mastercard: 2-2
5. Stock-Based Compensation
Stock-based compensation is a cost for shareholders and should be treated accordingly.
Preferably we want SBCs as a % of Net Income to be lower than 4% and certainly below 10%.
Mastercard pays out slightly less Stock-Based Compensation
Score Visa - Mastercard: 2-3
Now let’s dive into the final 5 points and determine which stock looks the most attractive.
6. Historical Growth
We seek companies that managed to grow their revenue and FCF by at least 5% and 7% per year respectively.
The evolution of the revenue of both companies looks like this:
Source: Finchat
As you can see, Mastercard has grown at slightly higher rates than Visa
Score Visa - Mastercard: 2-4
7. Outlook
You want to invest in companies that manage to grow at attractive rates.
Why? Stock prices tend to follow the evolution of the intrinsic value over time.
As you can see, Mastercard is expected to grow at higher rates
Score Visa - Mastercard: 2-5
8. Valuation
We always use 3 methods to look at the valuation of a company:
A comparison of the forward PE multiple with its historical average
Earnings Growth Model
Reverse Discounted-Cash Flow
You can learn more about these valuation models here.
Visa trades at cheaper valuation levels compared to Mastercard
Score Visa - Mastercard: 3-5
9. Evolution Owner’s Earnings
Over time, stock prices tend to follow the Owner’s Earnings of a company (EPS Growth + Dividend Yield).
Here’s what things look like for Visa and Mastercard:
Mastercard has grown its Owner’s Earnings at higher rates in the past.
Score Visa - Mastercard: 3-6
10. Creation of Shareholder Value
We want to invest in companies that compounded at attractive rates in the past.
Ideally, the company returned more than 12% per year to shareholders since its IPO.
Mastercard performed better than Visa on the stock market
Score Visa - Mastercard: 3-7
Source: Finchat
Conclusion
Both Visa and Mastercard are excellent companies we would love to own at the right price:
Visa is a more established, lower-growth company. You can buy it at cheaper valuation levels compared to Mastercard.
Mastercard has a lower market share, and trades at a higher valuation multiple but has better capital allocation metrics and more growth potential
I prefer Mastercard over Visa, but it depends on your personal preferences.
Do you prefer lower risk and a more established company? Pick Visa.
Do you prefer more growth potential? Pick Mastercard.
Here’s a comparison between both companies (click on the picture to expand):
Currently, Visa or Mastercard are not a part of Our Portfolio.
Why? Because there are more attractive opportunities in the market right now.
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Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data