Lessons learned from Visa and Mastercard in a year of cryptocurrency news

In this podcast, Motley Fool senior analyst Jason Moser discusses:

  • Like Visa and MasterCard he got away with it in a year dominated by cryptocurrency news.
  • Because fortress-like balance sheets will be an even bigger asset in the new year.
  • Leader who is looking into 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 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 had better not miss it. Motley Fool Money starts now. I’m Chris Hill, joining me today, Motley Fool Senior Analyst Jason Moser. Thanks for being here.

Jason Moser: Happy to be here. Thanks for hosting me.

Chris Hill: I wanted to chat with you in part because of something you tweeted a few weeks ago. Let me prepare it for people to listen because I think we were talking about it right before we started recording. I think we are in a very interesting time for equity 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 that billionaire Chamath Palihapitiya says Visa and Mastercard will be the biggest business failures in 2022 by losing to altcoin-related projects.

As we’re conducting this conversation, Visa and Mastercard are both down about seven percent year-to-date, which brings both stocks into question, calling it eight percentage points higher than the overall market. The point isn’t to single out Chamath and say, this guy screwed up. It’s really to talk about the part of the break that doesn’t get a lot of attention. It’s the question of when companies say they’re going to disrupt an industry. I feel like we don’t talk enough about the question, how do you think the companies you’re trying to disrupt will react?

Jason Moser: Yes. This is a really good point. That didn’t tweet it to single out Chamath so much. He has a penchant for making such hyperbolic claims. This can be taken from what it is I guess. But this one, in particular, caught my eye for a variety of reasons, and to some extent it feels like clickbaity. But I think when you look at a new market like cryptocurrency and Altcoin projects and then you look at these companies and Mastercard and Visa, any worthwhile company is going to be consistently focused on their competition around the market that they serve, the competitive dynamics within of that market, the threats that might come down the pike, it’s just any company worth its salt will.

To think that Mastercard and Visa aren’t doing this is either naïve or just plain ignorant. I’m not calling it naïve or ignorant, but it could just be spoken before thinking. Just look at some of the numbers here for Mastercard and Visa and you can quickly see that these aren’t businesses that will be easily disrupted. If you look at fiscal 2022 for Visa, they had $11.6 trillion in payment volume. They processed 192.5 billion transactions. You look at Mastercard and it’s more than the same gross dollar volume of $7.7 trillion of transactions 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 activity would be stopped.

But you also need to consider the fact that companies like these no matter where you are on cryptocurrencies. I think overall I would call myself a skeptic, I’m not really looking to invest in that space. But they’re definitely investing in that space to make sure they understand how that’s evolving and how that could potentially be a threat and also potentially an opportunity. I think for me you have to make sure you understand with these types of companies that they are absolutely looking at competitive threats and I think they are evaluating that landscape on a consistent basis.

Chris Hill: Expanding that beyond the financial sector, it really feels like it’s partly because we’re starting a new year. I think it’s only natural for us, whether it’s our personal health or the news cycle or finance or whatever, to start January with essentially a fresh set of eyes. When I look through that lens, I’m looking at large companies with fortress balance sheets like Microsoft and Apple and Alphabet. I think I don’t know what’s going to happen in the stock market in 2023. I’m generally optimistic, but it seems like those companies are in a better position than anyone else. The behemoths seem to be in better shape. It’s not that they don’t have challenges. It’s not that they aren’t dealing with the same macroeconomic conditions as everyone else. It’s just that when you have a strong balance sheet, it gives you the peace of mind that small emerging companies that are more dependent on a low interest rate environment don’t have.

Jason Moser: Hundred percent. Just like in our personal finances, having a rock solid balance sheet can make your day a lot easier and take a lot of stress away. Even companies that are putting 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 that conversation. I don’t even know what the year is going to hold for the stock market, but I’m pretty sure the tailwinds have continued to build in cashless transactions in the digital movement of money, I think those tailwinds will continue to build in that people are going to spend money. The money has to go from point A to point B.

This too will not change. You look at these companies that have put themselves in a position just by running the business intelligently or by just having a product or service that people really can’t live without, you look at Apple, smartphones I think are the lifeblood of so much of what we do every day. While Apple doesn’t own the smartphone market, they certainly control a large part of it. I think breaking the iPhone will be a tough task. It’s not something that’s going to happen any time soon. This is what we also talked about recently, Home storage and Lowes.

Home improvement will be something that will exist constantly. When you have this massive installed base of housing that we have here nationwide, that stuff has to be maintained. Now, looking through that one year lens, these are companies that I feel like you can own indefinitely really, I feel like these are businesses that you want to try to stay in indefinitely and you, obviously, evaluate the state of the business every year. Make sure these competitive forces aren’t eroding the potential these companies possess. But for me, having these kinds of businesses that are behemoths, this has been a great year to own them. Look back at how Visa and Mastercard performed.

I think we’ve seen the performance there, Mastercard year-to-date is down 4.9 percent. Seen year-to-date down 5.3 percent relative to the market, which is down 19.8 percent right now as we’re recording it. It seems to me that owning this type of business makes investing much easier. I like to say that investing is as easy or as difficult as you want to make it. It’s damn easy when you think about it, it doesn’t take much and just owning businesses like these really makes a difference in the world I think. It just makes it so much easier to be a tough-guy investor owning this type of business, along with perhaps the worst smaller speculative ideas that may be a little less certain.

Chris Hill: Later in the week, we’ll have our full preview for 2023. I know you’ll be there. Jason Moser, it’s always nice to talk to you. Thanks for being here.

Jason Moser: Thank you.

Chris Hill: As always, people on the show may be interested in the stocks they talk 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’m Chris Hill. Thanks for listening. See you tomorrow.

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

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