Visa Inc. (Visa) and Mastercard Inc. (Mastercard), the two world’s leading financial service providers, have the potential to be the next companies that could reach the special threshold of $1 trillion valuation companies.
As for now, only the technology-based companies bagged such an elite spot of $1 trillion companies. With the rapid increase in the use of digital finance services around the globe, the two companies have able to push their revenues soaring and are the only non-tech companies to gain access to the elite spot.
Rise in the Use of Digital Consumer Purchases
As Reuters reported, the credit-and-debit finance service providers, Visa and Mastercard have had their market stocks soaring over the years which led the two financial companies currently ranked 7th and 11th in the benchmark S&P 500 index. It was reported that these two finance companies had gained nearly 50% of their stock price in the last some years.
The rapid growth of the companies was due to their constant efforts to boost their financial services through signing deals. In January 2020, Visa made a buyout deal a firm privately held by Plaid Inc. at a $5.3 billion deal while Mastercard announced a deal with the corporate services businesses of Scandinavian payments group Nets for about $3.19 billion.
The tremendous rise in the consumers’ online shopping globally has brought a dynamic change in the digital or cashless financial transaction. Based on the present trend of using smart cards, Sandy Villere, the portfolio manager of the Villere Balanced Fund which also holds Visa shares, stated, “Everything travels on their rails.”
Villere explained the positions of these financial services, “They literally sit in the middle of the banks, consumers and merchants and that has been a really enviable place to be.”
According to Lisa Ellis, senior analyst at MoffettNathanson, “About 43% of consumer purchases around the world excluding China are made using a digital form of payment, up from 28% in 2010.” As Ellis stated, “globally Visa holds a 60% share of the credit and debit card market, followed by Mastercard with 30%, with American Express far behind at 8.5%.”
Reaching the Threshold of $1 Trillion Value
Reuters claimed that each of these companies, Visa and Mastercard would be worth over $1 trillion by 2023 if they continued their average annual gains of the past three years. With this pace of growth, it was expected that these non-tech companies would easily surpass the potential growth of tech giants such as Facebook Inc. and Berkshire Hathaway Inc. in the near future.
As Reuters reported, Visa had reached a market value of $449 billion while Mastercard was valued at about $324 billion as of Thursday’s close. According to Refinitiv Data, “revenue for both Visa and Mastercard nearly doubled over their past five fiscal years, to nearly $23 billion for Visa, and about $17 billion for Mastercard. Adjusted earnings per share more than doubled for both companies over that period.”
Refinitiv Data further asserted that the companies have surpassed their stock trading significantly last year than their average trade over the past five years. Citing the highest mark of the stock market gaining in a decade, Data stated, “Visa trades at about 31 times forward 12 months’ earnings estimates, while Mastercard trades at 35 times.”
Meanwhile, it was estimated that the companies’ stocks started 2020 strong but it could be pulled back because of the existing challenges especially the virus outbreak from China. Ellis explained that the companies are likely to face greater competition in financial service from the big tech rivals and tougher regulations in the coming years.
I’m Roshan, a journalist, blogger and music lover. I like covering global news related to finance, business, and technology. Focusing on the collection of true and reliable information, I rely on working by conducting interviews with business leaders and talking to the inside sources of companies.
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