A Closer Look At Mastercard’s Key Value Drivers

by Trefis Team
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Mastercard (NYSE:MA) has consistently beat street estimates despite an overall slowdown in global economic conditions in 2018. Gross dollar volume achieved 13% growth, with a 20% growth in purchase transactions and 10% growth in cash transactions. The United States, Europe, and Asia Pacific regions contribute 90% to Mastercard’s GDV with a roughly equal share of 30%, respectively. Economic growth in Asia Pacific is expected to drive Mastercard’s revenue in 2019, as the economies of the United States and Europe are expected to grow at a much slower rate (per World Economic Outlook, 2019). The company is witnessing growth figures in payment transactions and cash transactions about in line with the overall industry trend. Per a World Payments report by Capgemini, the contribution of emerging markets to non-cash transactions are expected to increase to 50% by 2021 from the current levels of 33%.

We have a price estimate for Mastercard of $238 per share, which is above the market price. You can view our interactive dashboard on What is Mastercard’s Fundamental Value Based on Expected 2019 Performance? to modify the company’s key drivers and observe their impact on share price, and see all of our Financial Services company data here.

What Is Driving Mastercard’s Value? 

  • Transaction Processing Revenues have been witnessing high-teens growth for the past three years, driven by an increase in the number of transactions. Purchase transactions increased across geographies, with the APMEA region growing at a consistent 20% level for the past two years. Growth in cash transactions has been much lower at 10% compared to purchase transactions. The share of cash transactions has fallen from 89% to 77% in 2018 (per a McKinsey Report). Consistent with the overall industry trend of a shift from cash payments to digital payments and positive economic outlook of the Asia-Pacific region, we expect MasterCard’s transaction processing revenue to continue growing at a high-teens level in 2019.
  • Domestic Assessment Revenues have been witnessing mid-teens growth for the past three years, barring 2018 due to new revenue recognition rules. Domestic assessment is the fee charged to issuers and acquirers on the basis of dollar volume of activity. Gross dollar volume increased by 13% and 9% in 2018 and 2017, respectively. Out of the five reported geographies by Mastercard, the GDV growth slowed in Canada and Latin America. On the contrary, the Asia-Pacific region reported strong growth of 13.4% in 2018. Consistent with the economic slowdown in all reported geographies except Asia-Pacific, we expect domestic assessment revenue to grow at modest low-teens levels in 2019.
  •  International Transaction Revenue has seen mid-teen growth in the past two years, and contributes over 20% of our price estimate. Per a Global Payments Report by McKinsey, the share of B2B in cross-border volume is the highest followed by C2B, B2C, and C2C. The cross-border online e-commerce payments (C2B) are expected to grow at a 10% CAGR through 2021. Other segments are expected to grow within the range of 5-10%. Despite higher growth observed by Mastercard’s cross-border volumes in the past two years, we have kept our forecast for 2019 at moderate levels.

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