Is Mastercard a Promising Investment?

PHOTO CREDIT: Mastercard

OVERVIEW

Mastercard Incorporated is a financial technology company based in the United States. It offers transaction services and other related products around the world. Banks and other companies who want to offer a Mastercard debit/credit card will pay the company to use its services to transfer payments between consumers and merchants. The company also offers analytical, payment security, and other payment solutions.

Why You Should?

  1. The COVID-19 Pandemic has seen a boost in e-commerce spending and transactions without cash. Mastercard has benefited from this and the future looks to consist mainly of plastic and other digital ways of payment. Mastercard will see higher spending volumes and will see demand for its products increase because of this.
  2. Mastercard primarily makes money through interchange and other processing fees, which issuing banks will pay it when consumers spend money on Mastercard branded cars. Mastercard will see payment volumes around the world continue to rise as they see a stronger global economy return. This will benefit the company’s payment and other related fees as consumers spend more money.
  3. Mastercard continues to innovate its products to attract customers through acquiring and investing in other financial technology startups. The company recently invested in Marqueta, a financial technology company that helps startups issue payment cards and other payment solutions. Marqueta’s services are used by DoorDash, Instacart, and Square.
  4. Mastercard operates a low-risk and extremely profitable business model. The company does not need to issue credit (issuing banks do that) and get payments from issuing banks in the forms of interchange and processing fees. This low-risk investment is loved by investors and is a great position to hold during times of economic uncertainty.
  5. Mastercard has seen rising revenues and profits over the past couple of financial years. The company looks to see strong growth in the future due to the increase in demand for digital payments. This will benefit the company’s long-term growth as they can further build up their networks through acquisitions and will cause the company’s stock price to go up. In the financial year of 2019, the company reported revenues of around 16.9 billion and profits of around 8.1 billion. Both of these metrics are higher than what the company reported in the financial year of 2018 when they had revenues of around 15 billion dollars and profits of around 5.9 billion.
PHOTO CREDIT: Yahoo Finance

Why you Should Not?

  1. Mastercard faces tough competition from several other financial technology companies like Visa and American Express. They also face competition from other large companies like Apple, Google, and Amazon who are in or looking to enter the digital payment sector. This competition might hurt the company’s future growth.
  2. Mastercard’s stock currently trades over 300 dollars which means that it currently trades at around 50 times earnings. This is much higher than Mastercard’s larger competitor, Visa, which currently trades at around 40 times earnings. I would wait for the stock price to fall before investing in this great company.

MY OPINION

In my opinion, I think that Mastercard is an extremely safe investment with a profitable business model. The COVID-19 Pandemic which resulted in a spike of digital payments as well as its strong growth led by investing and acquiring other companies will benefit the company in the future. A stronger economy will further benefit the company’s performance. However, competition and valuation might hurt the company.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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