The Payment Card Titan: Comparing Visa, Mastercard, and Amex

19 ต.ค.

◉ Abstract
The global credit card market is projected to grow from USD 559.18 billion in 2023 to USD 1,146.62 billion by 2033, driven by advancements in digital payment technologies, e-commerce growth, increased financial literacy, and urbanization, especially in Asia-Pacific.

Visa leads the market with a 38.73% share, followed by Mastercard and American Express. Visa and Mastercard operate primarily as payment networks, while American Express both issues cards and offers unique rewards. Financially, all three companies show strong revenue growth, with American Express yielding the highest ROI but also carrying significant debt.

Despite this debt, American Express appears undervalued based on financial ratios. Overall, while American Express presents an attractive investment opportunity, Visa and Mastercard also demonstrate solid fundamentals and growth potential for investors in the expanding credit card market.

Read the full analysis here . . .

◉ Introduction
The Global Credit Card Market Size was Valued at USD 559.18 Billion in 2023 and the Worldwide Credit Card Market Size is Expected to Reach USD 1146.62 Billion by 2033,


◉ Key Growth Drivers
● Digitalization and Technology: Advancements in payment technologies, including mobile wallets and contactless payments, enhance convenience and security.
● E-Commerce Growth: The rise of online shopping increases demand for credit card payments, as consumers prefer their ease and safety.
● Financial Literacy: Improved understanding of financial products encourages more consumers, especially in developing regions, to adopt credit cards.
● Urbanization: Growing urban populations, particularly in Asia-Pacific, lead to greater access to banking services and credit facilities.
● Emerging Markets: Rising disposable incomes in developing countries drive new credit card accounts as financial institutions expand their offerings.
● Consumer Convenience: The preference for quick and easy payment methods boosts credit card usage over cash transactions.
● Rewards Programs: Attractive loyalty programs incentivize consumers to use credit cards for everyday purchases.
● Regulatory Support: Government initiatives promoting cashless transactions foster a favourable environment for credit card adoption.

◉ Market Overview
As of 2022, the global credit card market was primarily led by Visa, which held a 38.73% share of the worldwide payment volume. Mastercard followed with a 24% market share, while American Express (Amex) accounted for 4.61%. Notably, China UnionPay is also a major player in this space, surpassing Amex in terms of purchase volume

◉ Key Players in the Payment Card Industry

1. Visa V
● Market Cap: $552 B
● Market Share: 38.73%
● Business Model: Payment network facilitating transactions between consumers, businesses, banks, and governments globally.
● Card Issuance: Does not issue cards itself.
● Global Reach: Extensive acceptance network across more than 200 countries.

2. Mastercard MA
● Market Cap: $474 B
● Market Share: 24%
● Business Model: Payment processor and network partnering with banks to offer various card products.
● Card Issuance: Does not issue cards itself.
● Global Reach: Broad acceptance worldwide with diverse products catering to different consumer needs.

3. American Express AXP
● Market Cap: $203 B
● Market Share: 4.61%
● Business Model: Card issuer and payment network offering unique benefits and rewards directly to cardholders.
● Card Issuance: Issues its own cards.
● Global Reach: High acceptance rate in the US (99% of merchants), lower in Europe and Asia due to higher transaction fees.

◉ Technical Aspects
● From a technical perspective, there's a notable similarity among the three stocks: each is exhibiting strong bullish momentum, consistently achieving higher highs and higher lows.
● All three stocks have formed a Rounding Bottom pattern, and after breaking out, their prices have climbed to new heights.
● While Mastercard and American Express are currently trading at their all-time highs, Visa is positioned just below its peak.

◉ Relative Strength

The chart vividly demonstrates that American Express has excelled remarkably, achieving a return of nearly 85%, whereas Mastercard and Visa have delivered returns of 28% and 20%, respectively.

◉ Revenue & Profit Analysis

1. Visa

● Year-over-Year

➖ In FY23, Visa achieved a remarkable revenue increase of 11.4%, reaching $32.7 billion, up from $29.3 billion in FY22.
➖ The EBITDA for FY23 also saw a significant rise, totalling $22.9 billion compared to $20.6 billion in FY22.

● Quarter-over-Quarter

➖ In the latest June quarter, Visa's revenue rose to $8.9 billion, slightly surpassing the $8.8 billion reported in March 2024. This reflects a year-over-year growth of nearly 9.5% from $8.1 billion in the same quarter last year.
➖ The EBITDA for the most recent June quarter reached $6.2 billion, indicating an almost 9% increase from $5.7 billion in the same quarter last year.
➖ In June, the diluted EPS saw a modest rise, climbing to $9.35 (LTM) from $8.94 (LTM) in March 2024, which represents a notable year-over-year increase of 18.6% from $30.3 (LTM).

2. Mastercard

● Year-over-Year

➖ Mastercard's revenue for FY23 experienced a robust growth of 12.9%, reaching $25.1 billion, up from $22.2 billion in FY22.
➖ The EBITDA for FY23 also increased, reporting $22.9 billion, up from $20.6 billion in FY22.

● Quarter-over-Quarter

➖ In the recent June quarter, Mastercard's revenue climbed to $7.0 billion, compared to $6.3 billion in March 2024. Year-over-year, this marks an increase of nearly 11% from $6.3 billion in the same quarter last year.
➖ The EBITDA for the latest June quarter was $4.4 billion, reflecting an almost 9% rise from $3.9 billion in March 2024.
➖ In June, the diluted EPS saw a slight increase, rising to $13.08 (LTM) from $12.59 (LTM) in March 2024, which is a significant year-over-year increase of 23% from $10.67 (LTM).

3. American Express

● Year-over-Year

➖ For the fiscal year 2023, the company experienced a remarkable revenue growth of 9.7%, reaching an impressive $55.6 billion, compared to $50.7 billion in fiscal year 2022.
➖ Additionally, operating income showed a positive trajectory, with fiscal year 2023 reporting $10.8 billion, an increase from $10 billion in the previous fiscal year.

● Quarter-over-Quarter

➖ In the latest June quarter, revenue continued its upward trend, totalling $15.1 billion, up from $14.5 billion in March 2024. This represents a significant year-over-year growth of nearly 8.7% from $13.9 billion in the June quarter of the previous year.
➖ Furthermore, operating income for the June quarter reached $3.2 billion, marking a substantial increase of almost 19% from $2.7 billion in the same quarter last year.
➖ The diluted earnings per share (EPS) also saw a remarkable rise in June, climbing to $13.39 (LTM) from $12.14 (LTM) in March 2024, which is a significant jump of 36% compared to $9.83 (LTM) in the same quarter last year.

◉ Valuation

● P/E Ratio
➖ Visa stands at a P/E ratio of 29.1x.
➖ Mastercard is at a P/E ratio of 38.7x.
➖ American Express shows a P/E ratio of 20.6x.
➖ When we analyze these figures, it becomes clear that American Express appears significantly undervalued compared to its peers.

● P/B Ratio
➖ Visa has a P/B ratio of 14.3x.
➖ Mastercard's P/B ratio is a staggering 64x.
➖ American Express, however, has a P/B ratio of just 6.8x.
This further reinforces the notion that American Express is currently undervalued in the market.

● PEG Ratio
➖ Visa's PEG ratio is 1.56.
➖ Mastercard's PEG stands at 1.71.
➖ American Express shines with a PEG ratio of just 0.56.
➖ This metric also highlights American Express's superior value proposition compared to its peers.

◉ Cash Flow Analysis
➖ Visa's operating cash flow for the fiscal year 2023 has risen to $20.8 billion, marking a notable increase from $18.8 billion in fiscal year 2022.
➖ Similarly, Mastercard has experienced growth in its operating cash flow, which has reached $12 billion in fiscal year 2023, up from $11.2 billion in the previous year.
➖ In contrast, American Express has reported a significant decline in its operating cash flow, decreasing from $21.1 billion in fiscal year 2022 to $18.6 billion in fiscal year 2023.

◉ Debt Analysis

1. Visa
● Debt to Equity Ratio: Approximately 0.52 as of June 2024, indicating a stable financial structure with moderate leverage.
● Total Debt: About $20.6 billion.
● Total Shareholder Equity: $39.7 billion.
● Analysis: Visa's ratio reflects a cautious debt approach, balancing equity and debt financing, with net debt well-supported by operating cash flow, enhancing financial stability.

2. Mastercard
● Debt to Equity Ratio: Approximately 2.10, indicating a higher reliance on debt compared to Visa 5.
● Total Debt: $15.6 billion.
● Total Shareholder Equity: $7.5 billion.
● Analysis: Mastercard’s higher ratio suggests it is more aggressive in leveraging debt for growth initiatives compared to Visa. This strategy may lead to greater volatility in earnings due to interest obligations.

3. American Express
● Debt to Equity Ratio: Approximately 1.80, indicating a significant level of debt relative to equity 5.
● Total Debt: $53.2 billion.
● Total Shareholder Equity: $29.54 billion.
● Analysis: American Express’s ratio shows a strong reliance on debt financing, which can enhance growth but also introduces risks related to interest payments and market conditions.

◉ Top Shareholders

1. Visa

● The Vanguard Group has notably boosted its investment in Visa, now commanding a remarkable 7.52% share, reflecting a 0.62% increase since the close of the March quarter.
● In contrast, Blackrock maintains a stake of approximately 6.7% in the firm.

2. Mastercard

● When it comes to Mastercard, Vanguard has also made strides, raising its ownership to an impressive 8.27%, which is a 1.02% uptick since the end of March.
● Blackrock, on the other hand, has a substantial 7.56% stake, showing a 1.17% growth from the same period.

3. American Express

● As for American Express, Warren Buffet’s Berkshire Hathaway boasts a significant 21.3% stake in the company.
● Meanwhile, Vanguard holds a 6.36% interest, while Blackrock has a 5.89% share.

◉ Conclusion
After a thorough analysis of both technical and financial indicators, we find that American Express offers a compelling valuation opportunity that is likely to attract investors. Nonetheless, it is important to recognize the significant debt load the company carries, a concern that also extends to Mastercard.
● From a technical standpoint, the chart for American Express seems to be stretched thin. Investors might want to hold off for a corrective dip to secure a more advantageous entry point.
● Mastercard's financial results reflect solid performance, though it carries a high level of debt. The technical chart indicates a slight overvaluation. Savvy investors might look to build their positions during times of price stabilization.
● Visa presents a well-rounded synergy between its technical and fundamental metrics. Its chart reveals a remarkable rebound, approaching previous all-time highs after a notable decline. The company's valuation and growth potential make it a compelling investment choice.