MasterCard (NYSE:MA) reported strong performance for the first quarter of 2012, with an increasing number of customers switching to electronic modes of payment.  Increased transactions volumes were observed as the U.S. unemployment figures dropped to a 3-year low. This was reflected in the earnings as the company reported net income of $682 million, up 21% from last year, with diluted earnings per share of $5.36. Despite the encouraging numbers, MasterCard maintained a cautious tone as it expects a growth slowdown in the near future, owing to uncertain markets in the U.S. and the debt crisis in Europe. Increased consumer spending also had a positive effect on MasterCard’s competitors Visa (NYSE:V), American Express (NYSE:AXP), Discover Financial (NYSE:DFS) and Capital One (NYSE:COF).
Debit Cards Provide Huge Boost
MasterCard rode on the wave of popularity that debit cards have seen over the past few years, with initiatives to gain market share. Over half the debit cards issued in the U.S. are now processed by the company. MasterCard tripled its share of the U.S. PIN debit transactions and now has more than 20% of the market. Debit card transactions have been increasing over the past few years, and we expect the trend to continue over the Trefis forecast period. Transaction fees account for 22% of our price estimate of MasterCard’s stock.
Positive Signs from Investments
Last year, MasterCard successfully acquired DataCash and Access Prepaid to enhance its functioning in e-commerce and prepaid cards. Access Prepaid, acquired from Travelex last April, has helped increase MasterCard’s program management capabilities across the markets globally. The company entered into an agreement with Thomas Cook, where the latter will issue Access Prepaid MasterCards in India, enabling the company to establish a foothold in one of the fastest growing economies. DataCash, on the other hand, provides e-commerce solutions allowing merchants and consumers to connect remotely via the Internet. DataCash also handles transactions outside those made by MasterCard, adding to the company’s analytical capabilities. MasterCard has also launched a multi-currency purse in Australia to encourage cross-border trading.
The company is in prime position to gain from the expected growth in transactions through mobile phones, as it has ties with both Isis and Google Wallet, the main players in this domain. We will keep a close eye on related developments in this sector.
Our price estimate for MasterCard is $465, about 3% above the current market price.Notes:
- Mastercard Incorporated’s CEO Discusses Q1 2012 Results – Earnings Call Transcript, SeekingAlpha, May 2nd, 2012 [↩]