As concerns about a potential recession in 2025 grow, investors are asking what will happen to payment stocks in a recession? If the economy slows down. Bernstein analysts have taken a close look at the 2008-09 recession to predict how payment companies like Visa Inc. (NYSE:V), Mastercard Inc. (NYSE:MA), and PayPal Holdings (NASDAQ:PYPL) will react in a downturn.
In their recent note to clients, Bernstein analysts, led by Harshita Rawat, suggest that payment stocks could remain relatively resilient during a recession. Here’s why:
Factors Supporting Payment Stocks During a Recession
The analysts point to several factors that could help payment stocks weather an economic slowdown:
- Secular growth: International expansion and long-term growth trends in payments will likely buffer companies.
- Transaction volume: The number of transactions tends to be less impacted by economic downturns, which should help maintain steady revenues.
- Inflation: Nominal purchase volumes typically remain supported by inflation during a recession.
- Stable pricing and recurring revenue: Many payment companies have predictable, recurring revenue streams, which provide stability.
Performance of Payment Stocks in the 2008-09 Recession
In the 2008-09 Great Recession, real GDP fell by 5 percentage points, and inflation briefly turned negative. During this period, credit card volumes grew at a modest rate of low single digits, and transaction numbers increased in the high single digits to low double digits. Cross-border growth slowed, but debit card spending actually rose by 10%, while credit card spending declined by 1%. E-commerce fell slightly as well, in the low single digits.
Despite these economic headwinds, Visa Inc. (NYSE:V) saw revenue growth of 9% in 2008-09, and Mastercard Inc. (NYSE:MA) grew by 4%. Meanwhile, payment processors like Fiserv Inc. (NYSE:FI) and Fidelity National Information Services Inc. (NYSE:FIS) saw flat to low single-digit revenue declines.
What Does the 2025 Recession Outlook Look Like?
Bernstein analysts are forecasting a U.S. recession starting in mid-2025 and lasting through early 2026, with real GDP growth slowing by 1.5 to 2 percentage points. Despite these gloomy expectations, payment stocks may not face as severe a downturn as other sectors, according to the analysts. They note that forecasting the impact on payment stocks remains difficult, as various factors like shifting macro conditions, geographic exposure, and product mix come into play.
Resiliency of Specific Payment Stocks
The analysts also provided insights on how different payment stocks are expected to perform in a recession, ranked from most resilient to least:
- Fidelity National Information Services Inc. (NYSE:FIS) and Fiserv Inc. (NYSE:FI) are expected to be the most resilient, largely due to their recurring revenue streams. The analysts predict only 1-2% negative revisions to their forecasts in a downturn.
- Global Payments Inc. (NYSE:GPN) is likely to be somewhat more exposed given its business mix but should remain relatively stable.
- Visa Inc. (NYSE:V) and Mastercard Inc. (NYSE:MA) are anticipated to experience low single-digit negative revisions in a recession, assuming a slight decline in real GDP growth for the full year.
- PayPal Holdings Inc. (NASDAQ:PYPL) could face more significant negative revisions—approximately 4% on gross profit and high single digits on EPS—due to its exposure to discretionary e-commerce and credit businesses.
- Adyen (ADYEN), known for its discretionary commerce exposure, is expected to experience a 3% negative revision to revenue and high single-digit EPS declines.
- Block Inc. (NYSE:XYZ) may see a 4% reduction in gross profit and double-digit EPS revisions, partly due to its exposure to small and medium-sized businesses and its credit/lending operations.
- Toast Inc. (NYSE:TOST), the most macro-exposed payment stock in Bernstein’s coverage, is predicted to face high single-digit negative revisions and significant double-digit EPS declines due to its exposure to new business formations and discretionary spending.
Conclusion: Slower Growth Ahead, But Not a Certain Recession
Though slower growth is almost guaranteed, a recession in 2025 is not yet a certainty. Analysts like Dennis DeBusschere of 22V Research note that growth may slow due to tariffs, but whether or not the economy slips into a full recession is still unclear. What’s certain, however, is that payment stocks will likely remain relatively resilient, even amid the uncertainty of a potential economic downturn.
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