MA: PayPal (PYPL) vs. Mastercard (MA)

In this article, I evaluated two financial stocks, PayPal Holdings, Inc. (PYPL) and Mastercard Incorporated (MA), to analyze the potential winner for this year. After thoroughly evaluating these stocks, I think MA might be a superior choice for the reasons discussed in this article.

Swift gravitation towards digital banking and mobile-based financial solutions has become one of the growing United States financial services market trends. With consumers increasingly adopting digital lifestyles, the demand for online banking, digital payments, and even complex solutions like robo-advisors for investments has risen.

Additionally, the comfort of using these platforms, combined with their ability to offer real-time data and analytics, ensures that their adoption rate continues to grow further. Therefore, the global financial services sector is expected to grow at a CAGR of 6% until 2032.

Furthermore, the financial sector will likely experience significant changes, such as the incorporation of generative AI, which will enable better risk assessment, generate deeper insights from data, enhance fraud detection, etc. Generative AI in financial services is expected to grow at a CAGR of 28.1% until 2032.

PYPL declined 4.6% over the past month compared to MA’s 2.3% gain. The stock has declined 23.6% over the past nine months compared to MA’s 15% gain.

Here are the reasons why I think MA might perform better in the near term:

Recent Developments

On January 16, 2024, PYPL announced it would provide an exclusive preview on January 25, of the first innovations PYPL and Venmo are piloting and bringing to market this year.

Conversely, On December 8, 2023, MA and Consumers International announced a new partnership to progress a comprehensive global effort aimed at improving protection and empowerment for vulnerable consumers in the digital finance sector.

The project seeks to establish a new community of stakeholders, including digital financial service providers, regulatory bodies, consumer advocates, and technology companies, to address the increasing complexity of the digital finance ecosystem.

Recent Financial Results

PYPL’s total payment volume (TPV) for the third quarter ended September 30, 2023, rose 15.1% year-over-year to $387.70 billion. Its net revenues increased 8.4% over the prior-year quarter to $7.42 billion. The company’s non-GAAP net income increased 14% year-over-year to $1.43 billion. Also, its non-GAAP EPS came in at $1.30, representing an increase of 20.4% year-over-year. However, total operating expenses increased 9.1% year-over-year to $6.25 billion.

On the contrary, for the third quarter that ended September 30, 2023, MA’s net revenue increased 13.5% year-over-year to $6.53 billion. Its operating income rose 23.5% over the prior year quarter to $3.84 billion. Also, the company’s adjusted net income and adjusted EPS increased 23.4% and 26.5% year-over-year to $3.20 billion and $3.39, respectively.

Past And Expected Financial Performance

Over the past three years, PYPL’s revenue increased at a 12.8% CAGR. Analysts expect PYPL’s revenue to increase by 20.1% in the year ended December 2023 and 6.6% in the fourth quarter ended December 2023. Its EPS is expected to increase 7.6% in the year ended December 2023 and 10% over the fiscal fourth quarter (ended December 2023).

Conversely, MA’s revenue has increased at a CAGR of 16% over the past three years. Its revenue is expected to increase 12.6% in the fiscal year ended December 2023 and 11.5% in the fourth quarter ended December 2023. Its EPS is expected to rise 14.1% in the year ended December 2023 and 16.3% in the fiscal fourth quarter ended December 2023.

Valuation

PYPL’s forward EV/EBITDA multiple of 8.47 is lower than MA’s 26.84. PYPL’s forward EV/Sales multiple of 2.12x is lower than MA’s 16.36x.

Profitability

PYPL’s trailing-12-month gross profit margin of 40.20% is lower than MA’s 100%. In addition, PYPL’s trailing-12-month asset turnover ratio of 0.38x is lower than MA’s 0.63x.

Thus, MA is more profitable.

POWR Ratings

PYPL has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, MA has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PYPL has a C grade in Quality. Its trailing-12-month gross profit margin of 40.20% is 33.4% lower than the industry average of 60.37%. However, its trailing-12-month ROCE of 18.82% is 61% higher than the 11.69% industry average.

On the other hand, MA has an A grade in Quality. Its trailing-12-month gross profit margin and trailing-12-month ROCE of 100% and 40.78% are 65.6% and 532.8% higher than the industry averages of 60.37% and 6.44%.

Among the 47 stocks in the in the Consumer Financial Services industry, PYPL is ranked #16, while MA is ranked #4.

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Sentiment. Get all PYPL ratings here. Click here to view MA ratings.

The Winner

The increasing government initiatives to digitalize the financial sector are notably driving financial service market growth. Industry players such as PYPL and MA are well-positioned to benefit from these industry tailwinds.

MA’s higher profitability makes it the better buy here.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Consumer Financial Services industry here.  

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! > 


MA shares were trading at $427.58 per share on Wednesday afternoon, down $0.77 (-0.18%). Year-to-date, MA has gained 0.41%, versus a -1.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor’s degree in finance and marketing and is pursuing the CFA program.

Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More…

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