A recent Mizuho analyst report highlights a steady decline in the share of consumer spending for Visa (V) and Mastercard (MA, Financial) as the U.S. cash-to-card market nears saturation. Analyst Dan Dolev emphasized the significance of personal consumption expenditure (PCE) growth shares for evaluating the growth trajectory of these companies in the U.S. market.
The U.S. Department of Commerce reported a 0.3% growth in PCE for September, an increase of $105.8 billion, slightly above August's 0.2% rise, meeting economists' expectations. Dolev noted that cash-to-card business accounted for about 45% of Visa's revenue growth. While Mastercard hasn't disclosed this metric, it's believed to be similar to Visa's.
Historically, Visa captured 61% of incremental U.S. PCE, with its payment volume correlating closely with PCE changes. However, from Q3 2019 to Q3 2024, Visa's share of five-year consumer spending growth is projected at 47%, slightly below the previous quarter and the 52% average in early 2013.
Mastercard, historically holding 22% of incremental U.S. consumer spending, is anticipated to have a 20% share from Q3 2009 to Q3 2024, a slight decline from the previous quarter, with a 22% average for 2023. Dolev highlighted Mastercard's increasing share in the U.S. debit card market post its Q3 earnings report, with a 20 basis point gap widening between the two credit card networks. Mastercard's U.S. debit card growth expanded to 8%, compared to Visa's 5%.
Furthermore, Mastercard's U.S. transaction volume in October is expected to rise by 400 basis points month-over-month, while Visa's growth is projected at 200 basis points. Both companies have similar cross-border growth, with Mastercard's cross-border business growing 200 basis points in October compared to September after a stable Q3.
Following an analysis of PCE's impact on these card networks, Dolev raised Mastercard's target stock price from $496 to $532 and Visa's from $279 to $292. Mizuho rates Mastercard as "outperform" and Visa as "neutral."
