A Closer Look At MasterCard’s 2017

MasterCard (NYSE: MA) has had a fairly strong 2017, as the company managed to grow its revenue, net of client incentives, by 15% in the first 9 months of the year, and its stock price has gained nearly 44% since the beginning of the year. The company’s core performance continues to be strong, about in line with our expectations. The company posted strong growth across all divisions, with transaction processing fees in the U.S. growing at 19% through the third quarter. The only downside for the company was that client incentives and rebates grew faster than overall revenue growth at 21%. These trends are similar to what we witnessed in the previous quarters and in line with our expectations for the company.

MasterCard’s expenses grew at the same pace as revenues, meaning that the company’s operating margin stayed just about flat. Going forward, we expect MasterCard’s expenditures on sales and marketing, and client incentives to grow at a slower pace, especially as it integrates the capabilities of NuData Security into its software suite. According to a U.S. Payments survey conducted last year, 74% of customers would prefer to use a service that is more secure than one that offered more benefits. Credit card customers are increasingly preferring security and ease of use over reward points, and the company’s focus in this direction can have a significant impact on the bottom line, as well as helping to grow its transaction volumes both in the U.S. and internationally. Its gross dollar volume (GDV) of processed transactions grew at 10% in the U.S., while cross border volumes grew at 14% on a local currency basis.

MasterCard remains in an extremely strong position overall. It is focused on increasing the revenue from transactions processed on its network in the U.S. as well as internationally. This can be achieved through a few routes:

• Increasing the number of MasterCard issued cards in circulation: As an increasing number of international merchants accept credit and debit cards, and more international customers shift from cash to card transactions, we expect that volumes will grow substantially.
• Increasing the number of devices through which payments can be made: Recent developments in mobile phone payment technology are expected to increase the reach of financial institutions across the world. The global volume of money spent using mobile phones is expected to grow to over $1 trillion by 2019. Almost 166 million users are expected to use NFC technology by 2018. By 2021, NFC or other contactless technologies are projected to generate close to $190 billion in transaction value.
• Increasing the spend per customer through increasing ease of use, security, reward points, and size of co-branding network: Recent deals with American Airlines, Bed Bath & Beyond, and PayPal in the U.S., Walmart in Canada and China, Axis Bank in India, and Amadeus (an international travel company) will help MasterCard on this front. These partnerships should help bring in more customers and also boost spending per customer.

Please refer to our complete analysis for MasterCard

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