Facebook
Twitter
MasterCard (NYSE: MA) last week reported a slim 1% gain in second-quarter revenue, but investors should not be too concerned. Business is pretty good for this payments processing company, and its market remains massive. The number of transactions it processed during the quarter rose 13%. Revenue growth would have been considerably stronger were it not for currency headwinds.
This is not to say that everything is rosy at MasterCard. Higher expenses during the quarter led to a slight decline in net income. And in comments with analysts after earnings were released, the multinational corporation identified multiple regions, including Latin America and Asia Pacific, where business was soft.
The company also reported that while the U.S. and Europe were generally stronger, U.S. consumers haven’t been spending all of the savings that lower gas prices have yielded. These remarks served as a reminder that the payments processing business is very much tied to the overall economy and consumer confidence. If consumer buying doesn’t bounce as much as expected in the wake of an encouraging development like lower gas prices, that’s a concern.
Here’s another concern: The steep investments required to bolster security and compete with higher-tech payment solutions. MasterCard said it is spending aggressively on technology and security, and it appears that these sorts of expenses will continue in the future as this old economy business seeks to stay current.
A Global Mainstay
For investors looking to hold for the long haul, however, MasterCard stock continues to look strong. While alternate payment services such as PayPal (NASDAQ: PYPL) have posed competition to the credit card processing businesses, payment by plastic remains the dominant form of consumer payments.
And MasterCard remains a dominant player. Both MasterCard and Visa (NYSE: V) are accepted by tens of millions of merchants around the world. So ubiquitous are both the payment services that many consumers use the names interchangeably.
While many merchants these days have yet to start accepting PayPal and don’t accept checks or American Express (NYSE: AXP) for that matter, MasterCard is almost as good as cash. The fact that both MasterCard and Visa can have such large businesses underscores just how large this market is, even as newer forms of payments emerge.
Over the past two years, MasterCard’s revenues have grown from $7.39 billion to $9.47 billion. Its net income rose from $2.76 billion in 2012 to $3.62 billion in 2014, and while results this year have been choppier, the longer-term trends of growth seem to be in place.
MasterCard’s stock has risen close to 30% over the past year, and more than 360% over the past five years. As an added bonus, it currently offers investors a $0.16 per share quarterly dividend.
Of course, the payments processing business is not immune to market disruption, and it’s certainly not inconceivable that another payments processing technology could emerge to render traditional credit cards obsolete.
But when something’s not broken, it doesn’t need fixing. Credit cards offer consumers a simple and affordable way to make purchases all around the world, and until someone figures out a better system, MasterCard will be sitting pretty.
“The Paramount Megatrend of our Time”
You know the Bush family. The name connotes power, politics and connections. The kind of connections they’ve used for decades to make themselves rich in industries including oil, finance and banking… even professional sports. But what few realize is that there’s another “industry” they’re cornering quickly and decisively. One that stands to make them far, far richer. Credit Suisse calls it the “Paramount Megatrend of our Time.” Go here to discover it now.