bad Credit

Why Mastercard Stock Keeps Dropping

Why Mastercard Stock Keeps Dropping
Written by Publishing Team

What happened

For the fourth consecutive day, the credit card giant’s shares Master Card Credit Card (NYSE: MSc) It was down in morning trading on Monday – down more than 5%. This is the bad news. The good news is that as of 12:35 PM ET, Mastercard’s stock has recovered more than half of its losses and is currently down just 2.4%.

But why was MasterCard discontinued at all? Why has he been slipping for days? Well, that’s the other bad news.

Glowing red arrow directions down.

Image source: Getty Images.

so what

According to TipRanks.com, on Friday last week, analysts at investment bank Mizuho Securities sharply lowered their target price for Mastercard’s stock – 14%, to $400 per share.

As Mizuho explained, MasterCard is in a better position than its arch rival Visaand benefiting from less exposure to debit cards, and better diversification, “more flexibility with respect to current trends such as crypto, more ‘out of the box’ thinking, and more potential profit margin.”

However, Mizuho warned that Mastercard’s growth may slow in future quarters due to “shortening the cash-to-card path.”

What now

What exactly is meant by “cash-to-card funnel”? Mizuho never moved Definition of The statement was made in her report, but the conclusion appears to be as follows: over the past several years, consumers have generally been paying for things in cash at a lower rate, and paying for things with cards more often – a phenomenon the analyst calls “cash-to-card”.

This trend has accelerated during the pandemic, as germ-phobic consumers shy away from touching cash and prefer paying for things with credit and debit cards instead. (The increase in online shopping by isolated, quarantined consumers has helped fuel this trend.) The problem is that while this enhanced card use (and card usage fees) for MasterCard in the short term, it has also prompted “cash to card forward. – in the absence of a pandemic – it probably won’t happen until 2022, 2023, etc. until 2021 instead.

Simply put, this means that there is less cash to “transfer” to cards in the future, and less wind to “transfer cash to cards” to support future revenue growth at Mastercard. That, in a nutshell, is why Mizuho lowered its target price for Mastercard stock – and that’s why investors are selling Mastercard stock today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

About the author

Publishing Team

Leave a Comment