Capital One Stock Is Trading Above Its Near Term Potential

Capital One Stock Is Trading Above Its Near Term Potential

Share to Linkedin Capital One's revenue of $28. 5 billion for the full year 2020 was marginally lower than the 2019 figure. This was primarily due to a 2% drop in net interest income driven by lower yields on average earning assets, a decline in outstanding domestic card loans, and higher deposit balances. However, the weakness in NII was almost offset by a 7% y-o-y growth in non-interest income, mainly due to an unrealized valuation gain of $535 million on equity investment in Snowflake Inc. On the profitability front, COF's net income slipped almost 50% y-o-y to $2. 7 billion. This drop could be attributed to a build-up in provisions for credit losses from $6. 2 billion to $10. 3 billion coupled with higher compensation costs. Net Interest Income contributes around 80% of the total revenues for Capital One. Hence, changes in interest rates can have a significant impact on COF's top-line. Further, the consumer spending level is also a very important factor that directly impacts the new loan issuance and card transaction volumes. The transaction volume and outstanding loans have recorded some improvement over the recent quarters and we expect them to further improve with recovery in the economy.