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COVID-19 And Mastercard: Impacted By Decreased Spending

May 04, 2020 10:55 AM ETMastercard Incorporated (MA)V6 Comments
Daniel Schönberger profile picture
Daniel Schönberger


  • Mastercard's business will be affected by COVID-19 as well as the upcoming recession as spending will decrease.
  • But Mastercard can profit from a potential shift in payment behavior over the long run.
  • With an intrinsic value of $211 Mastercard remains overvalued at this point.

This week, I will continue my series with the financial services company Mastercard (NYSE:MA). You should not be surprised, that this article is very similar to the article about Visa (V), which was published last week, as the business model of both companies is very similar. It is therefore quite logical, that Mastercard is affected in a very similar way as Visa. Last week, when I published the analysis about Visa, I had to rely on preliminary data and 8-Ks, while for the Mastercard article the analysis can rest on the earnings release from last week.

(Source: Pixabay)

All these articles will follow the same structure and focus on four different aspects that seem to be very important right now:

  1. Impacts from COVID-19: I am trying to analyze how COVID-19 as well as the measure and political decisions (lockdowns, social distancing, closures, etc.) will affect the business model.
  2. Impacts from a potential recession: As a global recession seems to be inevitable, I will also analyze how a recession will impact the business model.
  3. Solvency and Liquidity: In turbulent times, debt levels, solvency and liquidity are especially important and we are therefore taking a closer look at the balance sheet.
  4. Intrinsic Value Calculation: Although I included a potential recession in the near future in almost all calculations and considered a declining free cash flow, COVID-19 might call for an update of the intrinsic value.

(Source: Author's own work)

Impacts From COVID-19

Similar to Visa, Mastercard is also generating most of its revenue by processing payments and from authorization, clearing and settlement of payment transactions. And as credit cards are often used when traveling abroad, Mastercard was affected already in January when Hubei went on lockdown and countries as well as companies started to suspend traveling. As a result, cross-border volume fees declined pretty early. In late February, Mastercard

This article was written by

Daniel Schönberger profile picture
My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies).My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about wide economic moats in my Substack: https://stockmarket101.substack.comI also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

Should you consider adjusting your discount rate now that FED has lowered the interest rate to almost zero?
moseharper profile picture
You don't realize how many people LIVE on this and Visa cards. Yes, some changes, but no, not to the extreme degree .
The author is not able to look beyond current pandemic. There is light after the tunnel. We will have Therapeutics and vaccines. Gilead already has the drug. Is there any other company in payment industry better than MA/Visa? People need to pay up for Quality. P/E, P/S ratios mean nothing if everyone wants to be into these companies.

I like MA at the current price and will keep adding to my position against the advise of this author.
"we don't have to worry about Mastercard in the long run. In the meantime,..."
Until everything is given away for free, spending is a habit that's hard to break.
It rarely trades at its intrinsic value, whatever that may be
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

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