MasterCard: Key Growth Metrics In Focus

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Growth for MasterCard (NYSE:MA) has been on the upswing in 2014 on the back of surging transaction volumes as well as growth in markets outside the U.S. In the first half of the year, the company saw nearly 12% year-over-year growth in net income. The strong performance was also reflected by a nearly 14% growth in revenues in the first half of 2014 compared to the previous year. [1] Going forward, we expect this upward trend to continue for the remainder of 2014 as consumer sentiment improves in developed markets while penetration increases in emerging economies.

In this article we discuss three key metrics that help gauge the company’s performance – the total number of transactions processed, the gross dollar volume (GDV) and fees charged on international transactions. We also take a look at factors that will impact these metrics and in turn affect MasterCard’s performance in the second half of the year.

We have a price estimate of $86 for MasterCard’s stock, which is about 10% higher than the current market price.

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Total Transactions Processed

This represents the total number of transactions processed through MasterCard’s worldwide network. MasterCard charges fees on transactions for providing authorization, clearing and settlement services to the issuer and acquirer banks as well as merchants and customers. In 2013, MasterCard processed over 38 billion transactions. In the first half of 2014 the company has been able to clock in excess of 20 billion transactions, indicating a healthy growth trend over the previous year. [2] Supported by consistent growth in the recent quarters, we expect the total transactions for 2014 to be above 42 billion.

Gross Dollar Volume

MasterCard charges its clients based on the dollar volume of transactions, which is referred to as the gross dollar volume (GDV). GDV for the company has been steadily growing at around 10% each quarter compared to the same periods in the previous years. We expect the GDV to be around $4.5 billion in 2014, compared to $4 billion in 2013.

International Transactions

MasterCard has operations in more than 200 countries worldwide outside of North America, each falling into one of the following regional groups: Asia-Pacific, Middle East and Africa (APMEA); Europe; and Latin America. Such a vast presence allows customers with MasterCard branded cards to make transactions in more than 150 currencies. [3] The company charges fees for transactions that occur internationally in currencies different from the one in the country of card’s origin. There has been consistent growth in fees from international transactions as more people travel abroad and use non-cash payment solutions, as well as increased cross-border commerce over the Internet. We expect international GDV to continue to grow in double digits for 2014 and cross the $300 billion mark.

Strong Growth Expected In Second Half Of 2014

Growth in each of the abovementioned metrics is driven by factors such as the macroeconomic environment, card penetration, consumer sentiment and partnerships with merchants in the countries in which MasterCard operates. A focus on increasing credit and debit card penetration in emerging markets is likely to bolster MasterCard’s performance in the second half of 2014. Additionally, we expect improving economic conditions in key markets in Europe and Asia to fuel strong growth. MasterCard’s recent agreement with one of the largest retail brands in the Middle-East, the Landmark Group, will provide MasterCard with access to more than 6 million customers and provide an opportunity for further growth for the company. [4]

In the U.S., which alone contributes 40% of total revenues and is a highly penetrated market, business growth is dependent upon the prevailing consumer sentiment. As U.S. GDP gets back on the growth track, consumer sentiment is returning to healthy levels. [5]

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Notes:
  1. MasterCard Incorporated Reports Second-Quarter 2014 Financial Results, Investor Relations []
  2. SEC 10-Q Filing, July 31 2014 []
  3. SEC 10-K Filing, February 14, 2014 []
  4. MasterCard (MA) CEO Ajay Banga on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha []
  5. Bureau of Economic Analysis []