MasterCard (NYSE:MA) is set to announce its earnings for the first quarter of 2012 on Wednesday. We expect the company to report strong results with a positive outlook for the credit card industry, largely due to increased consumer spending and consequently higher transaction volumes. The company has reported strong revenues over the last few years with expenses steadily declining as industry conditions improved. MasterCard’s main competitor, Visa (NYSE:V), is also expected to announce its first quarter results on Wednesday. Other competitors in the space include American Express (NYSE:AXP), Discover Financial (NYSE:DFS) and Capital One (NYSE:COF).
Increased Cash Free Spending in Emerging Markets
MasterCard is well-positioned to benefit from the economic boom in emerging markets such as India, where there has been a shift from traditional cash transactions to payments using credit and debit cards. The company’s global footprint and strong brand has helped it gain substantial market share in these markets. Increased gross dollar volume of transactions have had a direct positive effect on the main drivers of our stock price for MasterCard, assessment fees and international transaction fees, which account for more than half of our price estimate.
Mobile Payments Gaining Popularity
The number of transactions using mobile payments has increased ever since the inception of the technology and has been boosted significantly by the growing popularity of smartphones. MasterCard adopted these products early and has collaborated with market pioneers Isis and Google Wallet. MasterCard recently launched the MasterCard Mobile Money Partnership Program, which will allow its customers to make transactions through their mobile phones even without a debit card or standard bank account.  This should help MasterCard increase its international market share, particularly in developing markets.
Dodd-Frank Reforms and Data Security Issues
The Durbin Amendment to the Dodd-Frank financial overhaul bill, which was implemented last October, seeks to limit the fees charged per transaction by card issuers. This presents a potential hindrance to MasterCard’s revenues, as it is no longer able to unilaterally charge interchange fees.
This February, Global Payments Inc, one of the biggest processors of MasterCard’s transactions, announced a breach in its card data processing system. Although the repercussions of this lapse in security have been muted so far, it remains a concern for customers worldwide. (See Global Payments Data Breach Exposes Card Payments Vulnerability).
Our price estimate for MasterCard is $465, which is about in line with the market priceNotes: