Mastercard Inc. MA has been an investor favorite, given its leading position in the payments space by virtue of its vast network, which processes millions of transactions everyday across the globe and enables it to earn huge processing fees.
The company’s investments in technology over the years have helped it to keep pace with the rapidly changing payments industry, which has come a long way from credit and debit cards to digital, contactless and other modes of payment.
Mastercard has been able to maintain its superior operating performance over the years with revenue CAGR of 13% from 2013-2018, which was further up 15% in the first half 2019. The top-line growth was fueled by an increase in switched transactions (number of times a Mastercard account is used to facilitate a purchase), gross dollar volume and the total dollar amount of all transactions across its network.
The company’s Service business provides good revenue diversification beyond its core payment processing business. This business offers services like fraud detection, reward program management, consulting, and data analytics to merchants and financial institutions.
The stock has grown 48% year to date, compared with the industry’s growth of 43%. Other players in the same space such as Visa, Inc. V, American Express Co. AXP and Discover Financial Services DFS have grown by 36%, 28%,35%, respectively.
Recently, Mastercard has also made some acquisitions, which include the buyout of Transactis to accelerate its go-to-market strategy for the Mastercard bill pay exchange. Transactis offers a unique combination of technical assets, distribution partnerships and customer relationships, which when combined with Mastercard’s current bill pay exchange capabilities, will allow consumers to view, manage and pay bills across multiple payment methods and channels.
Mastercard has also acquired Transfast, which allows it to disperse payments across bank accounts, mobile wallets and cards, all through a single API. It, however, estimates $0.06 to $0.08 dilutive effect of the acquisitions for 2019, driven primarily by purchase accounting and integration related costs. Though acquisitions resulted in integration risk, the deals added to overall growth.
Mastercard carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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