Despite a potential threat from tariffs, Visa and Mastercard are well-positioned for continued growth due to robust consumer spending and the expansive nature of the payments industry.
Over the past few years, consumer spending has remained relatively robust. Last quarter, consumer spending surged by 4.2%, marking the fastest pace since Q1 2023. In December alone, spending climbed by 0.7%, exceeding analysts' expectations. According to the Bureau of Economic Analysis report, Americans are saving less to spend more, with income increasing by just 0.4%, which is less than spending.
This trend, while beneficial for companies like Visa and Mastercard, isn't a positive indicator for Americans' personal finances. Increased spending translates to higher payment volumes processed through these companies' networks. Visa and Mastercard primarily generate revenue by charging fees on transaction values. Both companies witnessed substantial growth in payment volume processed through their networks during the final quarter of 2024. Visa's figure increased by 9%, accelerating from 8% in Q3. Mastercard experienced an even more significant jump, with payment volume rising by 12%, up from 10%.These increases are crucial drivers of revenue growth for both firms. They contributed to Visa's 11% revenue surge and Mastercard's 16% revenue rise on a constant currency basis. This top-line growth enabled Visa and Mastercard to boost their adjusted earnings per share (EPS) by 14% and 22%, respectively. President Trump's announcement of new tariffs on major trading partners raises concerns about the potential impact on Visa and Mastercard. Trump imposed tariffs of 10% on China, 25% on Canada, and 25% on Mexico. While he agreed to pause tariffs on Mexico and Canada, they remain a looming threat and could significantly impact the economy. Examining the first trade war Trump initiated with China offers some insights. Trump began imposing tariffs on China in July 2018, significantly reducing them in January 2020. During this period, Visa and Mastercard stock surged by 53% and 43%, respectively. Both companies saw a substantial increase in cross-border transaction volume.Theoretically, tariffs could negatively affect cross-border transaction volume as consumers are less inclined to pay higher prices. However, this could lead consumers to switch to similar products from their home countries, which Visa and Mastercard can still collect fees on. Ultimately, the biggest concern for Visa and Mastercard regarding tariffs is their potential to significantly reduce economic growth, leading to a decline in payment volume. This is a real possibility if tariffs remain in place for an extended period. Forecasters predict a 0.5% to 1% decrease in growth forecasts if tariffs on Mexico and Canada persist. However, they also forecast inflation to rise by the same amount. The resulting inflation from tariffs could increase Visa and Mastercard's payment volume and corresponding fee revenue. Therefore, tariffs might ultimately have a neutral impact on Visa and Mastercard's payment revenues as growth slows and prices rise. At this juncture, I don't view tariffs as a significant risk for Visa and Mastercard going forward. Visa and Mastercard are essential to the functioning of much of the global economy and have the potential for continued expansion. The payments industry is vast, encompassing everything from cash, card, and check payments to wire transfers, invoicing, disbursements, and remittances. Mastercard estimates a total serviceable payment volume market of $154 trillion that it can target. Consider the vast number of payments in emerging markets that still rely on cash over cards. In 2024, Visa and Mastercard combined for approximately $24 trillion in payment volume. This indicates substantial room for these companies to grow as digitization expands. Wall Street analysts have generally raised price targets for both firms following their latest results. The average of analysts' price targets after recent earnings suggests a 12% upside for Visa and a 14% upside for Mastercard compared to their February 3 closing prices. Overall, I remain optimistic about Visa and Mastercard shares. barring a global economic slowdown or recession, these stocks can continue to outperform.
CONSUMER SPENDING VISA MASTERCARD TARIFFS PAYMENT VOLUME REVENUE GROWTH ECONOMIC FORECAST INVESTMENT
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Visa/Mastercard ATM update: The deadline for $197.5M settlement is here.The settlement covers people who used certain ATMs over 17 years.
Read more »
Whistleblower Alleges Mastercard and Visa Facilitated Child Sex Abuse Material and Sex Trafficking on OnlyFansA whistleblower complaint has accused Mastercard and Visa of turning a blind eye to illicit revenue flows from child sexual abuse material and sex trafficking on the adult content platform OnlyFans. The complaint alleges that the payment giants were aware of their networks being used for these illegal activities but failed to take sufficient action to prevent them.
Read more »
Tesla's Soaring Stock: Riding the Trump Wave or a Risky Gamble?Tesla's stock has experienced a dramatic surge since the presidential election, fueled by investor optimism about President Trump's policies. However, the company faces significant challenges, including increased competition, potential regulatory hurdles, and controversies surrounding CEO Elon Musk's political involvement.
Read more »
Coinbase Launches in Argentina, Riding the Wave of Economic Reform and Crypto AdoptionCoinbase, a major U.S. cryptocurrency exchange, has officially launched operations in Argentina, capitalizing on the country's growing demand for digital assets and its commitment to economic liberalization.
Read more »
QuantumScape and Energizer: Riding the Wave of the EV Battery BoomThis article explores the impact of the growing electric vehicle market on the US battery industry, focusing on two prominent companies: QuantumScape, a developer of next-generation solid-state batteries, and Energizer, a traditional battery manufacturer with a stake in the auto care market. It examines their respective positions, recent developments, and potential for success in this rapidly evolving landscape.
Read more »
Riding the Green Wave: Investment Opportunities for Small Businesses in the Booming Cannabis Industry in 2025The cannabis industry is poised for explosive growth in 2025, offering a wealth of opportunities for small business owners. Explore key trends like federal legalization, state market expansion, and the booming CBD market. Discover how technology and real estate investment can give your business a competitive edge.
Read more »