MasterCard (NYSE:MA) has managed to come a long way and has become a globally well known publicly traded company since its initial public offering. The company has significantly grown and it seems like its growth is not going to be slowing down anytime soon.
The company's latest financial results for the second quarter of 2014 reveal significant growth. MasterCard reported net income of $931 million which showed an increase of 10%, or 9% after being adjusted for currency, and earnings per diluted share of $0.80 which showed an increase of 14% as compared to the same period in the previous year. The company reported net revenue of $2.4 billion in the second quarter of 2014 which is a 13% increase from the same period last year. All the financial results for the second quarter of 2014 reveal significant increases as compared to the results in the same quarter the previous year. The question that arises here is: what are the factors that have resulted in MasterCard achieving such high growth rates.
The total transactions processed have increased:
MasterCard charges fees on all the services it provides including authorizing, settlement and clearing services to the issuer and acquirer banks along with merchants and customers. During the year 2013, MasterCard managed to process 38 billion transactions, thus generating a significant amount of revenues from transaction fees. During the first half of the year 2014, MasterCard has managed to process over 20 billion transactions, meaning that there is an expected increase in the overall transactions processed during this year; this has resulted in a direct increase in the company's growth rate and revenues. Expected total transactions for the year 2014 are 42 billion transactions, which connotes that a major reason behind the company's growth is the fact that the number of transactions processed has been increasing.
Worldwide purchase volume is increasing:
At $821 billion, the total worldwide purchase volume has increased by 13% as compared to the same quarter in the previous year. The company's customers had issued 2 billion MasterCard and Maestro branded cards by the end of the second quarter of 2014. This shows that the overall purchase volume is increasing at a global level as a result of which the company is experiencing excellent growth rates. The increase in the overall purchase volume also leads to higher total transactions, thus benefiting the company in more than one way.
The Gross Dollar Value is increasing:
One of the ways that MasterCard charges its customers is based on the dollar value of their transactions. The company has been experiencing a continuous increase of 10% in the Gross Dollar Value ((GDV)) in each quarter as compared to the same quarter in the previous year. GDV for the whole year 2014 is expected to rise by 0.5 billion to 4.5 billion as compared to the GDV of 2013. This is one of the key factors that have contributed to the overall growth of the company.
The company's international transactions have also been increasing:
It is worth noting that the company generates a significant portion of its earnings via its international transactions. It operates in over 200 countries globally which makes it a strong international company in its category. The company's widespread presence means that it deals in over 150 currencies. It charges fees for all the services that it provides to the customers globally. There has been a significant increase in the overall transaction fees that the company has been receiving at a global level. International GDV is expected to increase over the $300 billion mark, as a result of which this factor continues to remain a significant reason behind the growth of the company. Reasons for this increase include the fact that individuals travel abroad more frequently as a result of which they look for non-money solutions to their needs which is exactly what MasterCard specializes in providing them.
Will this growth continue?
So far, all the expectations for the second quarter of the year 2014 point towards higher growth rates for the company. The transactions made by MasterCard customers are increasing not only at a national level but are increasing globally. This means that the fees that the company charges its customers on these transactions are also significantly increasing, as a result of which the company will continue to grow in the years to come. Furthermore, it is expected that the European and Asian markets will be experiencing favorable economic conditions, as a result of which they will continue to provide strong growth opportunities to the company which will result in higher growth for the company. MasterCard's continuous expansion plans will also allow the company to significantly grow, as a result of which the company will remain a good option for investors for a long time to come.
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