Lessons learned from Visa and Mastercard in a year from Crypto News

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In this podcast, Motley Fool Principal Analyst Jason Moser explains:

How Visa and Mastercard fared in a year dominated by crypto news. Why fortress-like balance sheets will be an even greater asset in the new year. The leaders he watches in 2023.

To see full episodes of all of The Motley Fool’s free podcasts, check out our Podcast Center. To start investing, check out our quick start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on December 28, 2022.

Chris Hill: A wise man once said, when you come to the king, you better not miss it. Motley Fool Money starts now. I’m Chris Hill, with me today is Motley Fool Senior Analyst Jason Moser. Thanks to be here.

Jason Moser: Glad to be here. Thank you for.

Chris Hill: I wanted to chat with you partly because of something you tweeted a few weeks ago. Let me put this in place for people listening because I think we were talking about it right before we started recording. I think we are in a very interesting time for stock market investors. A few weeks ago, you tweeted a photo of a story TechCrunch did almost exactly a year ago. It was December 31, 2021 and the headline was billionaire Chamath Palihapitiya says Visa and Mastercard will be the biggest business failures in 2022, losing to altcoin-related projects.

As we have this conversation, Visa and Mastercard are both down about 7% year-to-date, which puts the two stocks around, call it eight percentage points better than the whole market. The goal is not to isolate Chamath and say that this guy was wrong. It’s really to talk about the part of the disturbance that doesn’t get as much attention. It’s that question of when companies say they’re going to disrupt an industry. I feel like the question isn’t talked about enough, how do you think the companies you’re trying to disrupt are going to react?

Jason Moser: Yes. That’s really a good point. This didn’t tweet this to single out Chamath so much. He has a penchant for making hyperbolic statements like that. It can be taken from what it is, I suppose. But this, in particular, caught my eye for a number of reasons and it shows to some extent. But I think when you look at a new market like crypto projects and Altcoin and then you look at those companies and Mastercard and Visa, any company that’s worth it is going to be constantly focused on their competition around the market they serve, the competitive dynamics within this market, the threats that might arise, it’s any company worth their salt is going to do it.

To think Mastercard and Visa don’t do this is naive or just plain ignorant. I don’t call him naive or ignorant, but he may have just spoken before he thought. Just look at some of the numbers here regarding Mastercard and Visa and you can quickly see that these are not companies that are going to be easily disrupted. If you look at fiscal year 2022 for Visa, they made $11.6 trillion in payment volume. They processed 192.5 billion transactions. You look at Mastercard and it’s more the same $7.7 trillion gross transaction volume of $112.1 billion, these are not businesses that are going to be easily disrupted. I’m not saying they can’t be, they certainly can be. I think any business would be disrupted.

But you also need to consider that companies like these, regardless of your stance on crypto. I think generally speaking I would call myself a skeptic, I’m not really looking to invest in this space. But they’re certainly investing in this space to make sure they understand how it’s evolving and how it could potentially be a threat and also potentially an opportunity. I think for me, you have to make sure that you understand with these types of companies that they absolutely look at competitive threats and I think they assess that landscape on a consistent basis.

Chris Hill: Broadening it beyond the financial industry, it really seems partly because we’re starting a new year. I think it’s natural for us to do that, whether it’s with our personal health or the news cycle or finance or whatever, to start January with basically a fresh outlook. When I look through that lens, I look at big companies with fortress balance sheets like Microsoft and Apple and Alphabet. I think I don’t know what’s going to happen to the stock market in 2023. I’m generally optimistic, but it looks like these companies are in better shape than anyone else. The juggernauts just seem to be in better shape. It’s not that they don’t have challenges. It’s not that they don’t face the same macro conditions as everyone else. It’s just that when you have a fortress balance sheet, it gives you peace of mind that small start-ups that are more dependent on a low interest rate environment don’t have.

Jason Moser: One hundred percent. Just like in our personal finances, having a rock-solid balance sheet can make days a lot easier and take a lot of stress away. Companies that also put themselves in this position. It puts them in a completely different mindset. I would totally agree with that. Companies like Mastercard and Visa I would include in this conversation. I don’t know what the year will hold for the stock market either, but I’m pretty sure tailwinds have continued to build in cashless transactions in the digital movement of money I think that those tailwinds are going to continue to grow in that people are going to spend money. Money has to go from point A to point B.

That’s not going to change either. You look at these companies that have put themselves in a position to either run the business smartly or just own a product or service that people really can’t live without, you look at Apple, smartphones I think are the cornerstone of much of what we do every day. Although Apple doesn’t own the smartphone market, they certainly control much of it. I think disrupting the iPhone is going to be a tall order. It’s not something that’s going to happen any time soon. That’s what we also talked about recently, Home Depot and Lowe’s.

Home improvement is going to be something that is just going to exist constantly. When you have this huge installed base of housing that we have here in the country, those things have to be maintained. Now looking through the prism of a year, these are companies that I think you can really own indefinitely, I think these are companies that you want to try to keep indefinitely and you, of course, assess the state of the company every year. Make sure that these competitive forces don’t erode the potential that these companies possess. But for me, owning these types of companies that are behemoths, it’s been a great year to own them. Look at the performance of Visa and Mastercard.

I think we noted that the performance there, Mastercard year-to-date, was down 4.9%. Visa year-to-date down 5.3% versus the market, which is down 19.8% right now as we record this. For me, I feel like owning these types of businesses makes investing a lot easier. I like to say investing is easy or as hard as you want it to be. It’s pretty darn easy when you think about it, it doesn’t take a lot of time and just owning businesses like these really makes all the difference in the world I think. It just makes it much easier to be an investor going through the tough times of owning these types of businesses, as well as perhaps the worst smaller speculative ideas that can be a little less certain.

Chris Hill: Later in the week we will have our full preview for 2023. I know you will be there. Jason Moser, always happy to talk to you. Thanks to be here.

Jason Moser: Thank you.

Chris Hill: As always, program participants may be interested in the stocks they’re talking about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. I am Chris Hill. Thanks for listening. Well see you tomorrow.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Chris Hill holds positions at Alphabet, Apple, Home Depot, Lowe’s Companies, Microsoft and Visa. Jason Moser holds positions at Alphabet, Apple, Home Depot, Mastercard and Visa. The Motley Fool holds positions and recommends Alphabet, Apple, Home Depot, Mastercard, Microsoft and Visa. The Motley Fool recommends Lowe’s Companies and recommends the following options: Long Calls $120 March 2023 on Apple and Short Calls $130 March 2023 on Apple. The Motley Fool has a disclosure policy.

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