MasterCard (MA) Last Update 2/18/21
Related: V AXP DFS
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
MasterCard
$363.31
Yours
Trefis Price
N/A
$367
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

MasterCard Company

VALUATION HIGHLIGHTS

  1. Transaction Fees constitute 34% of the Trefis price estimate for MasterCard's stock.
  2. Domestic Assessments constitute 28% of the Trefis price estimate for MasterCard's stock.
  3. Services Fees constitute 22% of the Trefis price estimate for MasterCard's stock.

WHAT HAS CHANGED?

Latest Earnings

In Q4 2020, MasterCard reported net revenues of $4.1 billion, which was 7% less than the previous year. Further, cross border transaction revenues dipped by 29% y-o-y.

Impact of coronavirus outbreak

Mastercard stock suffered in the beginning of the year, considering the impact that the outbreak and a broader economic slowdown could have on consumer spending and the global payments processing industry. As the company derives around 22% of its revenues from International Fees; travel bans and widespread panic due to Coronavirus outbreak could severely impact this revenue stream. Further, lower consumer spending could result in lower transaction volume leading to lower transaction processing fees, which contributes around 34% of the company’s revenues. While the company’s result for the Q2, Q3 and Q4 2020 saw some decrease in revenues, we believe Mastercard’s Q1 FY2021 results will likely see some improvement driven by recovery in consumer demand.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below we look at key drivers for MasterCard and the potential upside or downside for the company's stock.

  • Transaction Processing Revenue: MasterCard charges a transaction processing fee from its customers for providing them its network and infrastructure to carry out transactions. The company's revenue from transaction processing has increased from $1.5 billion in 2007 to $7.3 billion in 2018, growing at almost 15% on a compound annual rate. Given the healthy macro-economic environment, we expect the company's revenue from the division to grow strongly in the near term and gradually in the long run. We expect the revenue to increase to $15.8 billion by the end of the forecast year. However, if the global markets become volatile and the transaction processing revenue reaches only $12.7 billion by the end of our forecast period, there could be a downside of 9% to our current price estimate.

  • Cross-border Revenue: A significant part of Master Card's revenues come from the fees it levies on cross-border transactions. A cross-border transaction is a transaction in which the cardholder's country is different from the merchant's country. MasterCard levies a cross-border fee and a currency conversion fee for any transaction made outside of the cardholder's country. The company's revenue from cross-border transactions has increased from $1.2 billion in 2007 to $4.9 billion in 2018, growing at almost 12% on a compound annual rate.
    Given the healthy macro-economic environment, we expect the company's revenue from the division to grow strongly in the near term and gradually in the long term. We expect the revenue to increase to $8.7 billion by the end of the forecast year. However, if the global markets become volatile and the transaction processing revenue reaches only $6.2 billion by the end of our forecast period, there could be a downside of 7% to our current price estimate.

BUSINESS SUMMARY

Master Card is the second-largest global payment solutions company in the world. It provides a variety of services to support credit, debit, and related card solutions of over 24,000 financial institutions globally. The company generates revenue by charging fees for transaction processing and other services. The company's brands include Master Card, Maestro, and Cirrus. MasterCard processed more than 90 billion transactions and $4.33 trillion of purchase volume in 2018.

SOURCES OF VALUE

Master Card generally charges its customers on a per-transaction or percentage of transaction basis, so its revenues are primarily impacted by the number of transactions it processes and total dollar volume of purchases made using its cards.

Master Card's revenues primarily come from the following sources:

Transaction Processing Fees

Master Card acts as a transaction processing service for its customers. The company authorizes, clears, and settles all transactions made using its cards. MasterCard also allows customers to use its network and infrastructure to carry out transactions. In exchange for these services, MasterCards charges a Transaction Processing Fee.

Cross-border Volumes

A major part of Master Card's revenues come from the fees it levies on cross-border transactions. A cross-border transaction is a transaction in which the cardholder's country is different from the merchant's country. Master Card levies a cross-border fee and a currency conversion fee for any transaction made outside of the cardholder's country.

Domestic Assessment Fees

Assessment fees are charged to the bank which issued the card. These fees are based on the gross dollar volume (GDV) for a specific period. The rates vary depending on the nature of transactions and the region.

Other Revenue - Services Fees

For our analysis, we have included acceptance development fees, warning bulletin fees, consulting and research fees, and other fees such as penalty fees, hologram, and publications fees as services fees.

Rebates and Incentives (Contra-Revenues)

Rebates and incentives are paid to customers and merchants to encourage card issuance for the acceptance of Master Card branded cards. These are contra-revenues and vary with the Gross Dollar Volume. Rebates are given both on operations fees and also on assessments.

KEY TRENDS

Rapid growth in electronic, cashless payment solutions

Master Card provides cashless payment solutions to customers worldwide. These include payments done using credit cards, debit cards, and prepaid cards. The market for such transactions is growing at a rapid pace as growth in emerging economies outpaces that of the U.S. Card transactions have experienced explosive growth in the Asia-Pacific region, now representing over 25% of global card volume. We expect this growth to gain momentum as more people and merchants adopt credit and debit cards.

Mobile payments on the rise

Master Card offers special payment solutions to enable the payment of bills from mobile phones. Mobile payments have been growing at an impressive rate, and we expect this to continue as mobile payment solutions become more secure, and more consumers use smartphones. This should provide a substantial growth opportunity for the company. Master Card's digital payment platform, MasterPass, was launched in 2013 and is gaining widespread acceptance. Master Card has also tied up with Apple and Samsung Pay to further foray into the mobile payment segment.

Macroeconomic Outlook

The U.S. economy has been growing at a moderate pace, attributed to the falling unemployment rate and increasing consumer spending. The Asia Pacific and Latin American regions have been growing at a slow pace, though we expect the mobile payment segment to expand considerably due to high smartphone users. We expect a similar trend in the African region, which is likely to lead to moderate growth in transaction volumes for Master Card in the coming years.