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Why the Mastercard share continues to decline

What happened

For the fourth day in a row, shares in the credit card giant MasterCard (NYSE: MA) slipped in Monday morning trading – down more than 5%. This is the bad news. The good news is that at 12:35 p.m. ET, Mastercard stock has recovered more than half of its losses and is currently only down 2.4%.

But why is Mastercard down? Why has it been slipping for days? Well, that’s the other bad news.

Image source: Getty Images.

So what

According to TipRanks.comOn Friday last week, analysts at investment bank Mizuho Securities cut their price target on the Mastercard share quite sharply – 14%, to $ 400 per share.

As Mizuho explained, Mastercard is in a better position than its big rival Visa, benefiting from less exposure to debit cards, better diversification, “greater agility in terms of current trends such as crypto, more” out-of-the-box “thinking and a more potential upward margin “.

Nonetheless, Mizuho warned that Mastercard’s growth could slow in the coming quarters due to a “shortened cash-to-card conversion track.”

Now what

What exactly is a “cash-to-card conversion lead”? Mizuho never had time to to define phrase in his report, but the result seems to be this: In recent years, consumers have generally paid less for things with cash and more often with cards – a phenomenon the analyst calls “cash.” conversion to card. “

This trend accelerated during the pandemic, as germophobic consumers avoided touching cash and preferred to pay for their purchases with credit and debit cards. (An increase in online purchases by quarantined consumers has helped fuel this trend.) The problem is that while this has boosted card usage (and card usage fees) for Mastercard to run out. Over time, this also resulted in a “cash-to-card conversion” which – in the absence of the pandemic – might not have taken place until 2022, 2023, etc., in 2021 instead.

Simply put, this means there is less money to ‘convert’ to cards in the future, and less tailwind from ‘converting money to card’ to fuel future growth in Mastercard revenue. . This, in a nutshell, is why Mizuho lowered its price target on Mastercard shares – and why investors are selling Mastercard shares today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.