Mastercard and Visa May Have a Europe Problem

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Visa and

Mastercard might have “beautiful business models,” but their reliance on the global economy could be an issue in the next year, according to analysts at Piper Sandler.

“[W]e are increasingly concerned that Europe could enter a recession in 2023,” analyst Christopher Donat wrote in a research note Friday. “This would be negative for the payment transactions that drive revenue” for Mastercard (ticker MA) and Visa (V), he added. Europe accounted for almost 32% of Mastercard’s total volume in 2021, according to Donat’s report. For Visa, that number was 20%.

Donat downgraded both stocks, and lowering Mastercard to Underweight from a Neutral, and Visa to Neutral from Overweight. He also cut the target prices to $357 and $239, respectively, down from $360 and $283.

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Visa stock is down 2% to $216.01 in Friday trading, while Mastercard stock is down 3.2% to $366.58. Visa stock has fallen 0.36% year to date, and Mastercard has gained 2%. For comparison, the

S&P 500 index has fallen 12% so far this year.

Aside from the expected European economic weakness, Donat also cited concerns around Asia and non-European activity. This includes the underperformance of payment growth in Asia, which might represent a “new normal” that lasts for years.

Russia’s invasion of Ukraine also isn’t helping, he wrote. The recent suspension of Mastercard and Visa operations in Russia could lead countries to consider non-U.S. payment networks. For example, Brazil’s Pix network demonstrates that countries can launch domestic payment networks.

Donat prefers other U.S.-based payment stocks such as

Marqeta (MQ),

Shift4 Payments (FOUR) and

i3 Verticals (ticker: IIIV). Outside of the U.S., Donat says he likes the emerging market growth stories of

Digital Realty Trust (DLR) and

PagSeguro Digital (PAGS). Donat also says the prices of

Adyen (ADYEY) and

PayPal Holdings (PYPL) stocks already reflect European concerns.

Write to Logan Moore at [email protected]