Bernstein Analyst Harshita Rawat Sums Up Q4 2021 and Early 2022 in 10 Key Insights to Assess U.S. Payments shares. The first: “The ‘pandemic and recovery’ tinted glasses come off, bringing some ‘winners’ back to earth.”
Overall, Visa (NYSE:V) and Mastercard (NYSE: MA) are most likely in Rawat’s coverage to see positive reviews and “narrative enhancement”. And while Russia’s domestic exposure is manageable for both companies, “we are watching closely for domino effects in cross-border travel.”
The other nine key pieces of information are:
- “Not all customers are created equal, we are closely monitoring the costs of customer acquisition (and the potential deterioration of the unit economy) in a post-pandemic world.”
- “Networks are here to stay. The revenue generated from large-scale partnership and customer engagement has outweighed the modest savings on card spend.”
- Expect another round of deals/M&As – “Likely Buyers: Merchant Acquirers (both legacy and new).” Focus areas are Buy Now, Pay Later Consolidation, Business-to-Business Expansion, Bill Pay, E-Commerce “Takeover”, Geographic Expansion, Software, Crypto.
- Inflation will help payout most stock earnings. For example, Visa (V), Mastercard (MA) and acquirer revenues are tied to transaction values. But it’s a downside for companies that rely on consumer discretionary spending, like PayPal. (NASDAQ: PYPL).
- “The e-commerce wars are starting amid deceleration, shrinking low-hanging fruit opportunities, and changing market landscape.”
- Crypto is a friend (even if complicated) but not an enemy.” Rawat points out that cryptocurrency is a feature, not a bug, in that it drives user engagement and monetization.
- Rawat gives great credit to the technology for the persistence of payments, but considers their threat to be probably overstated.
- Account-to-account is “still the biggest threat we’re watching, but we sleep a little better at night.” Core A2A features such as payment request, variable recurring payments and chargebacks are lacking, Rawat said.
- Finally, she wonders if technology and fins are beginning a “great convergence”. Rawat is closely watching the start of rewards on channels such as PayPal (PYPL) and BNPL and “some leveling of the playing field like in the BNPL space.
Rawat also likes Block (NYSE:SQ) for its Cash App compensation event, its efficient customer acquisition model compared to its peers and the integration of Afterpay agreements.
Meanwhile, PayPal’s (PYPL) risk reward is likely to improve a deceleration in e-commerce is now well understood and expectations have been reset lower. Execution and competition will be key.
Fiserv Acquirers (NASDAQ:FISV) and global payment (NYSE: GPN) are considered tactical recovery and recovery operations.
Looking at a group of payment stocks, Visa (V) and Mastercard (MA) also get the highest rating according to SA Quant rating. Affirm Assets (NASDAQ: AFRM) and Lightspeed Commerce (NYSE: LSPD) bad screen.
Stocks YTD, Visa (V), Mastercard (MA) and Global Payments (GPN) fell less than the S&P 500, while Block (SQ) and PayPal (PYPL) both fell more than the broader index, as shown in the graph below.
Earlier (February 2), PayPal, Block and other fintech stocks came back to earth after PYPL pivoted on its customer acquisition strategy