Co-authored by Scott Walster
OK, so it’s not as pithy as the 1960s Swedish cult film in which the main character (for 3.5 hours) dragged us around Stockholm on her search for life’s meaning. It is however, a fitting metaphor for those of us still walking around doe-eyed after the stock market drubbing of the last week and the blood-pressure- through-the roof-day on Monday. Our team at Market Platform Dynamics has been even more curious and has put together a little analysis of the performance of payments stocks over the past couple of weeks. While not quite as, well, seamy, as the film, the results may surprise and shock just the same.
So, who fared the worst? NetSpend was the biggest loser. And who fared the best? MasterCard. (Related: Party Like It’s 2008: What the US Debt Crisis Means for Payments)
So, here’s a little more background. We wanted to know just how some of the leading payments card players, across several key segments, did over the course of the recent stock market nosedive. We define “nosedive” as the period of time when U.S. markets started cratering (July 25th with 9 out of 10 days of losses) leading up to the panicked sell-off on Monday, August 8th. We ended our analysis on Tuesday, August 9th, thereby giving everyone credit for the biggest rise in the S&P 500 since March 2009. The table below shows the results for companies both year-to-date and over the past 12 trading days. For this purpose, we’ll focus on the last 12 days to show how the market changed its evaluation of the future prospects of these companies courtesy of the latest global financial crisis. Naturally, other things were going on in the payments market generally and for individual firms. We aren’t going to try to isolate each and every cause of the changes. This is just designed to be a broad brush look. So, no sweeping statements from us on cause and effect beyond the points Evans made on Tuesday about why payments firms are in the dumps now.
The table shows the results for 20 large players and a couple of broad stock indices ranked by their stock return over the last 12 trading days. We’ve included several of the large banks, even though they are hardly pure plays in payments.
What the table shows is really quite interesting. Prepaid pioneer NetSpend had the biggest drop of all—a whopping 45.6% loss in a little over two week’s time. Ouch. And despite the 10% tumble on Monday, MasterCard recovered enough yesterday that it came out ahead over these last 12 days with an overall 2.8% gain. In fact, MasterCard and Heartland Payment Systems were the only two companies we looked at that were in the black over the 12 day period.
Of the networks, Discover performed the worst, losing 12.9%. American Express was next at 11.8%. Visa came in second behind MasterCard, losing 7.6%. Part of the story is that Discover and AmEx are issuers, so the market is likely to be more concerned with those that are extending credit than those that are just processing transactions.
While many of the acquirer/processors are not publicly traded, of those that are, TSYS was the biggest loser with a 16.7% decline. Heartland Payment Systems did the best with a 2.6% gain.
The banks, of course, have a lot more going on besides payments. A lot of their pain came from the systemic risk concerns combined (like Europe doing a Lehman) with continuing legal problems (BAC’s seeming lawsuit a day problem). Bank of America took the biggest hit with a 25.0% loss, and Citigroup was close behind with a 20.9% drop.
On the prepaid side, well, it was all over the map. Green Dot managed to beat the broader market indices with “only” a -5.7% loss, while NetSpend fell by 45.6%. This was a double ouch given that NetSpend is already hurting from a poor second quarter earnings announcement and lower earnings guidance for the remainder of the year.
Very interesting, though, is Radiant Systems. This POS player in retail, hospitality, petroleum and other niche industries posted the third-best performance just behind MasterCard and Heartland at -1.1%.
And, how did the payments industry do overall? At least this list of firms did worse on average than the S&P 500. Twelve of the 20 had bigger losses than the S&P 500.
Is there a big takeaway? Certainly not a pretty time to be a bank (but that’s not really news). Beyond that, there was lots of variation in the fortunes—compare GreenDot with NetSpend and Visa with MasterCard. With the enormous gyrations and uncertainty of the last two days, we doubt the roller coaster ride is over. Stay tuned as this latest crisis plays itself out.
David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework®, a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass. David is the Founder of Market Platform Dynamics. Read More
Scott Walster is a Director at Market Platform Dynamics where he has consulted for many of the leaders in the payments and financial services industry. His advisory role has covered issues of innovation, strategy, economics, and regulation. Since joining MPD, Scott’s experience has focused on developing the research and analysis that describes the competitive landscape in the payments industry. He is also a specialist in financial analysis especially involving the causal relationship between events and security price movements.