Why Mastercard Stock Keeps Dropping

What happened

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

But why is Mastercard down at all? Why has it been sliding for days? Well, that's the other bad news.

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So what

According to TipRanks.com, on Friday last week, analysts at investment bank Mizuho Securities cut their price target on Mastercard stock rather steeply -- 14%, to $400 per share.  

As Mizuho explained, Mastercard is in a better position than its archrival Visa, benefiting from less exposure to debit cards, better diversification, "more agility in terms of current trends like crypto, more 'out-of-the-box' thinking, and more potential margin upside."

Nevertheless, Mizuho warned that Mastercard's growth could slow in future quarters due to a "shortened cash-to-card conversion runway."

Now what

What exactly is a "cash-to-card conversion runway"? Mizuho didn't ever get around to defining the phrase in its report, but the upshot appears to be this: Over the past several years, consumers have generally been paying for things with cash less often, and paying for things with cards more often -- a phenomenon the analyst calls "cash-to-card conversion."

This trend accelerated during the pandemic, as germophobic consumers shied away from touching cash and preferred to pay for things with credit and debit cards instead. (An increase in online shopping by quarantined consumers helped fuel this trend.) The problem is, while this boosted card usage (and card usage fees) for Mastercard in the short term, it also pulled forward "cash-to-card conversion" that -- absent the pandemic -- might not have occurred until 2022, 2023, etc., into 2021 instead.

Simply put, this means there's less cash to "convert" to cards in the future, and less tailwind from "cash-to-card conversion" to fuel future revenue growth at Mastercard. This, in a nutshell, is why Mizuho has cut its price target on Mastercard stock -- and it's why investors are selling Mastercard stock today.

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