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MasterCard: Strong Long-Term Prospects, Short-Term Pressures Remain

Jun. 05, 2020 3:23 PM ETMastercard Incorporated (MA)V8 Comments
Discount Fountain profile picture
Discount Fountain


  • MasterCard Incorporated saw growth in gross dollar volume for the first quarter, even though net income saw a drop from the same quarter last year.
  • However, the effects of lockdown measures in Q2 may become more apparent, placing downward pressure on gross dollar volumes.
  • I take a long-term bullish view on the stock, but short-term pressures remain.

At the end of April, I made the argument for taking a long-term bullish view on MasterCard (NYSE:MA).

In spite of economic concerns regarding what is expected to be a particularly severe upcoming recession as a result of the economic fallout from COVID-19, online sales have remained quite strong and the trend towards cashless has been increasing as a result of the pandemic.

The stock has seen a significant rise upwards throughout May:

Source: investing.com

Notwithstanding that the first quarter did not account for the totality of lockdown effects we have been seeing up till now, performance in this quarter remained quite impressive.

Worldwide Gross Dollar Volume was up by 8%, while 6% growth in GDV was recorded in the United States:

Source: MasterCard 03.31.2020 - Earnings Presentation Deck

When looking at cross-border volume trends, what is particularly interesting is that volumes for card not present transactions (specifically non-T&E or non travel and entertainment) has seen a significant increase - indicating that even in the virtual collapse of the travel industry over the past couple of months - cross-border volumes for other transactions are still seeing a rising trend.

Source: MasterCard 03.31.2020 - Earnings Presentation Deck

That said, there is the possibility that the second quarter might see pressure on revenues for MasterCard, given that the personal savings rate in the United States has seen a strong spike - up to 33 percent in April 2020 from 12.7 percent in the previous month:

Source: tradingeconomics.com

From that standpoint, while online and cross-border non-T&E transactions have thrived during the pandemic, the economic fallout from the pandemic has yet to be fully reflected in official statistics. In this regard, the outlook for Q2 could still be to the downside, in spite of encouraging Q1 results.

Additionally, we see that even though gross dollar

This article was written by

Discount Fountain profile picture
I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Analysing total room revenue across brands for Hyatt Hotels using data visualisation: https://seekingalpha.com/article/4632039-hyatt-hotels-stock-hyatt-regency-and-china-revpar-growth-impressive- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4605533-zurich-insurance-group-premium-growth-low-loss-ratio-encouraging- Calculating seasonality of customer lifetime value (LTV) for AT&T: https://seekingalpha.com/article/4634204-att-stock-growth-customer-lifetime-value-necessary-upsideDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

Analyst’s Disclosure: I am/we are long MA. 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.

Additional disclosure: This article is written on an "as is" basis and without warranty. The content represents my opinion only and in no way constitutes professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions.

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 (8)

Not sure why, in any of these analysis on MasterCard performance, that their recent grant by China to process domestic payments is not factored in?
I really don’t think MA should be trading in the 300’s at this point in time. Will wait to see what the holiday season brings before jumping back in.
richjoy403 profile picture
APY -- Agreed, but only potentially a significant benefit to MA (there being no certainties in China).

Feb 11th...
Mastercard given approval to prepare for entry into China’s payments market

"After years of unsuccessful attempts to enter China’s massive $27 trillion payments market, Mastercard announced today it has won approval from the People’s Bank of China (PBOC) to begin formal preparation to set up a bank card clearing institution in China. The news is a significant step toward Mastercard being able to do business in China, where large, domestic players currently dominate.

Last year, Mastercard set up a joint venture with NetsUnion Clearing Corp., a clearing house for online payments whose stakeholders included the PBOC, The Wall Street Journal reported. Mastercard together with NetsUnion then refiled its application as a joint venture called Mastercard NUCC Information Technology (Beijing) Co., Ltd. That application has now been approved, allowing preparatory work to begin.

According to regulations, the JV has to complete its preparation work within a year’s time for formal approval to begin domestic bank card clearing activity, the bank said."

Assuming all goes well, Mastercard would be the 3rd U.S. credit card company to get the green light to begin building out a payments network in China.

American Express was first to receive preliminary approval back in 2018 to clear credit card payments in China. In January, the People’s Bank of China then accepted Amex’s application to clear and settle payments domestically by way of its JV with Amex’s Chinese partner LianLian Group.

PayPal also last fall announced its intentions to enter China through the acquisition of a 70% equity stake in GoPay, making it the first foreign payments platform to provide online payments service in China.
richjoy403 profile picture
Qualifying US (and foreign) consumers appreciate MA (and V), and are addicted to cash and flight rewards.

Weekly, monthly, and annual share price returns are subject to the vicissitudes of the market and economy. Nonetheless, of my 47 positions, MA is among my best performers and least likely to fail.

MA's 15-year TR = 31.7% CAGR.

BTW, though the author is Neutral, 36 Sell-Side Analysts are Bullish
(21 are Very Bullish; 9 Bullish; 6 Neutral (and none Bearish or Very Bearish).

@Discount Fountain ,
"Granted, macroeconomic risks going forward and competition from Visa may place downward pressure on the stock in the near-term."

I don't see any short term pressure! MA is going to cross 52 week high of $347 by end of the year or much earlier. Jobs report ,today, showed that job numbers was much higher than the estimate which proves that economy is recovering much faster than many imagined. Dr. Fauci was on CNBC today and he was very optimistic about the drug/vaccine coming out soon.
Apple has retraced its 52 Week high that it reached in Feb. MA still needs to rise 11% to reach its 52 week high. So the recovery for MA has been slower than the market. Wall Street had no clarity so far on how the transaction volumes/Ecommerce for MA will increase given the pandemic and hence the stock price is where it is. Listen to Interview of Mastercard's US chief talk to Lisa of moffettnathanson and you will realize that MA has lot of levers to dial to keep increasing its revenues, profitability. MA is doing very well in contact less cards which helps in moving consumers from cash and makes the transaction experience much better(and hence more volume). Mastercard also have lot of data and analytics on consumer behavior which they are providing to end customers at a price and this area is very profitable.
Yes ,it was very good news today
Dividend Latitude profile picture
The pandemic will pass (they all do). T and E will pick up again (people want to enjoy life), and MA will be off to the races again.
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