1 week Why I’m bearish on V & MA, but still love FinTech Reddit     

  • In FY 2019 before COVID-19:
    • International Transaction revenue for V = 34.0% of Net Revenue
    • Cross-border Volume revenue for MA = 33.2% of Net Revenue

  • The latest quarter y/y change for V’s International Transaction revenue:
    • -38.3% revenue decrease
    • Cross-border volume x Intra-Europe = -41%

  • The latest quarter y/y change for MA’s Cross-Border revenue:
    • -47.9% revenue decrease
    • Cross-border volume x Intra-Europe = -49%

My concerns about V and MA: Both companies during their recent earnings call said personal travel should pick-up quickly once a vaccine is widely distributed, while business travel will take longer. I agree. They both mentioned that personal travel is “more substantial” than business travel. Neither company quantified how much of their International Transaction/Cross-border volume is in jeopardy because of the permanent impairment of business travel so that’s a major red flag, especially when you consider how important that revenue category is to both companies’ top-line and bottom-line since these transactions tend to be higher-yielding than domestic transactions. Without a clear answer, there’s a real risk that International Transaction revenue/Cross-border volume revenue and profit may disappoint after a vaccine is distributed because of business travel. Both stocks have held up well despite underwhelming results for a FinTech during the pandemic, but investors may need to rerate shares if performance is consistent with my concerns.

Why I could be wrong: V & MA may benefit from accelerated cash displacement and get volume from lower-yield transactions. But, it’s not clear if it will be enough to offset the higher-yield international transactions. It certainly wasn’t enough for either companies for the current quarter.

Why I still love FinTech: Besides travel, a lot of wonderful secular trends are benefitting the industry and will only accelerate due to the COVID pandemic. There’s a long run-way to expand the world’s population to have access to financial services like banking, online shopping will keep growing where cash isn’t an option, and continuous innovation will push people away from cash for face-to-face transactions.

submitted by /u/ricke813
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