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The rapid growth of digital transactions, which has accelerated during the COVID era, has significantly increased the use of credit card services. While ongoing digital change is driving growth for credit card companies, it is also bringing new security risks that require effective solutions. Mastercard Incorporated (NYSE: MA ) has dominated the credit card market for years, all while remaining largely unaffected by external challenges.
The company has an excellent track record of creating sustainable shareholder value. Typically, stocks gain momentum quickly after each fall, which makes them a reliable investment option. Now, it is in an upward spiral, after falling for two years less than a few months ago. MA seems to be on track to return to its all-time high early last year. For those who have missed out when the price was more favorable, it’s time to pull the trigger. While the stock has received a positive rating from the majority of analysts, some potential buyers will find it expensive.
Positive Outlook
Mastercard’s business is quite stable as people use credit cards for convenience and also as a substitute for cash. With more customers and merchants getting used to the benefits of using credit cards, demand will continue to grow. Interestingly, Mastercard does not compete with Visa Inc. (NYSE: V) because these companies have a large number of merchants and customers in their respective networks, and the market is growing.
Mastercard Incorporated Q3 2022 Earnings Call Transcript
The company looks to overcome the effects of high inflation and geopolitical issues by focusing on cost modulation and continued business expansion through programs like Digital First initiative and capture new payment streams.
Mastercard CEO Michael Miebach spoke on the last earnings call “…the macroeconomic and geopolitical environment remains uncertain. Inflationary pressures remain elevated and central banks continue to take aggressive steps to moderate inflation. Pensions remain high with the war in Ukraine and natural gas supplies to Europe a concern. Despite all this, the rate unemployment remains low, wages rise, consumer savings rates remain high, and credit is accessible.
Since Mastercard’s capital spending as a percentage of revenue is moderate, because it has a complete payment network in place, the operating margin is relatively higher. It is worth noting that in the most recent quarter, the company generated a net profit that was about 43% of the revenue for the period. After missing the previous quarter, third-quarter profits beat expectations, as has been the case in nearly every quarter over the past eight years.
Strong Q3
Gross dollar volume and purchase volume doubled in the September quarter, and total revenue increased 15% to $5.8 billion. That translated to a 13% increase in adjusted earnings to $2.68 per share. Management continues to return capital to shareholders – repurchasing $1.6 billion of shares in Q3 – thanks to healthy cash flow.
In the rapidly changing payments market, credit card companies face the risk of losing market share to fintech companies, with the latter’s virtual cards becoming increasingly popular. Also, the ongoing risk of recession does not bode well for Mastercard as it ultimately affects consumer spending power.
Visa savings can add value to your portfolio. This is why
While most Wall Street stocks fall below their long-term averages, MA remains an exception. On Friday, the stock surpassed the $370 mark and traded higher in the early hours of the session.
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