Mobile payments are evolving in a way that transactions no longer rely on the traditional credit card players. Visa (V) and MasterCard (MA) face competition from new mobile payments technologies. A New York Times (NYT) article argued that new partnership between Starbucks (SBUX) and Square announced this week may even replace your wallet.
The article cites transaction fees as a motivator for companies to look for alternatives to Visa and MasterCard. This would imply that Visa and MasterCard will face difficulty in competing in the mobile space.
Investors should not be bearish on either credit card company. The health of their business depends largely on the health of the economy. Visa and MasterCard have many channels where it profits from transactions. If anything, companies like Square will hurt more if the economy decelerates, because the company operates predominately in the mobile payment space and is highly reliant on one customer for growth. Still, the Starbucks initiative aims to improve profit margins and to give customers another payment option. These are both reasons why Starbucks remains a strong company.
Investors looking for a company profiting greatly from mobile payments should look at eBay (EBAY). eBay is no longer just an auction house, but a powerhouse for mobile transactions through ownership of PayPal. The payment growth at PayPal dwarfs any other mobile payment platform.
Business Section: Investing Ideas
The primary criteria for investing in companies involved with mobile payments include:
- Transactional growth far greater than that of competitors
- Mobile payment system complements existing business
Companies that fit these criteria are:
To get a snapshot for each company, click on the company icon. To get more detailed fundamental information on any of the companies, open the snapshot and select “number cruncher.” List Average 1-Year Return: 25%
1. eBay Inc. (EBAY, Earnings, Analysts, Financials): Provides online marketplaces for the sale of goods and services, as well as other online commerce, platforms, and online payment solutions to individuals and businesses in the U.S. and internationally. Market cap at $58.45B, recent closing price at $45.36. eBay’s PayPal integrates very well with its auction house. Paypal is a recognized brand. The security built around each transaction makes eBay a strong player in mobile payments.
2. Starbucks Corporation (SBUX, Earnings, Analysts, Financials): Operates approximately 16,858 stores, including 8,833 company-operated stores and 8,025 licensed stores. Market cap at $35.29B, most recent closing price at $46.43.
Traditional credit card issues are considered to be threatened by mobile payments, but this fear is unwarranted. Investors should look for weakness in the trading of the following companies and add them to their watch list:
3. Visa, Inc. (V, Earnings, Analysts, Financials): Operates retail electronic payments network worldwide. Market cap at $105.36B, most recent closing price at $129.89. Buffett recently reduced his position in Visa, suggesting the company is fully valued or that there are better opportunities. Visa is near a 52-week high, and should be looked at if it drops.
4. Mastercard Incorporated (MA, Earnings, Analysts, Financials): Provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers’ cheque programs. Market cap at $53.42B, most recent closing price at $428.08.
5. Bank of America Corporation (BAC, Earnings, Analysts, Financials): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. Market cap at $83.84B, most recent closing price at $7.78. The bank recently launched an “Online and Mobile Cash Back Deals” called BankAmeriDeals. By appealing to the needs for consumers earn rewards, the bank is exposed to transactions made in the mobile space.
6. JPMorgan Chase & Co. (JPM, Earnings, Analysts, Financials): Provides various financial services worldwide. Market cap at $140.93B, most recent closing price at $37.10. JP Morgan is fitting its cards with near-field communications, or NFC. Consumers can pay for things without card-swiping.
The Wall Street Journal reported that retailers are jointly developing a mobile-payments network. Called the “Merchant Customer Exchange,” the network will compete with Google (GOOG) and cellular carriers. The retailers involved include Wal-Mart (WMT), Target (TGT), Best Buy (BBY) and Lowe’s (LOW).
7. Wal-Mart Stores Inc. (WMT, Earnings, Analysts, Financials): Operates retail stores in various formats worldwide. Market cap at $250.42B, most recent closing price at $74.01.
8. Target Corp. (TGT, Earnings, Analysts, Financials): Operates general merchandise stores in the United States. Market cap at $41.91B, most recent closing price at $63.38.
9. Best Buy Co. Inc. (BBY, Earnings, Analysts, Financials): Operates as a retailer of consumer electronics, home office products, entertainment products, appliances, and related services primarily in the United States, Europe, Canada, and China. Market cap at $6.58B, most recent closing price at $19.35.
10. Lowe’s Companies Inc. (LOW, Earnings, Analysts, Financials): Operates as a home improvement retailer in the United States, Canada, and Mexico. Market cap at $31.23B, most recent closing price at $26.54.
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Dig Deeper: Access Company Snapshots, Charts, Filings
- eBay Inc. (EBAY, Chart, Download SEC Filings)
- Starbucks Corporation (SBUX, Chart, Download SEC Filings)
- Visa, Inc. (V, Chart, Download SEC Filings)
- Mastercard Incorporated (MA, Chart, Download SEC Filings)
- Bank of America Corporation (BAC, Chart, Download SEC Filings)
- JPMorgan Chase & Co. (JPM, Chart, Download SEC Filings)
- Wal-Mart Stores Inc. (WMT, Chart, Download SEC Filings)
- Target Corp. (TGT, Chart, Download SEC Filings)
- Best Buy Co. Inc. (BBY, Chart, Download SEC Filings)
- Lowe’s Companies Inc. (LOW, Chart, Download SEC Filings)
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Hi Chris, this is a great post and is particularly relevant due to the fact that there is predicted slowdown in credit company stock earnings triggered by the general recession. However micro payments and small and midsize processors offering unique solutions have hooked into new niche markets with early adapters leading the way in purchasing. In marketing terms, they are "creating demand", and this is one of the things that interest me most.