How Does Master Card’s Valuation Depend On The Frequency Of Credit Card Usage

-1.67%
Downside
479
Market
471
Trefis
MA: Mastercard logo
MA
Mastercard

As online payments become more and more prominent, Master Card (NYSE: MA) is positioned strongly to capitalize on this opportunity and grow its business. Master Card generates close to a third of its annual revenue from transaction fees. Along with assessment fees, this division is the most valuable for the company. Importantly, however, increased credit card usage allows the company to grow its transaction fees much faster than assessment fees, which do not scale with the volume of transactions processed on a payment network.

The table below shows three scenarios in which the number of transactions made on each Master Card issued credit card has been changed. The first scenario assumes that the number of transactions processed on Master Card’s network grow at a CAGR of around 10% for the 2016-2020 period . The second assumes a faster than expected growth rate, in which payments processed grow at a rate of 12%. In the third we assume that payments grow at a rate of 5% over the same period. As one can see from the table, a 2% increase in the growth rate can result in a  7.5% increase in the Trefis price estimate for the company. Similarly, a 4% decline can result in a 6.5% reduction in our price estimate for the company.

ma credit impact2

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for MasterCard

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