The growth and spread of the electronic-payments ecosystem is unstoppable. That’s the one conclusion that can be drawn from MasterCard’s (NYSE: MA) numbers from June 30, 2017.
Proof of that statement is provided by MasterCard’s revenues which grew to $11.42 billion on June 30, 2017. Those revenues increased by $360 million during second quarter 2017 and by $1.23 billion during the 12 months that ended on June 30, 2017. MasterCard reported revenues of $10.19 billion in June 2016 and $11.06 billion in March 2017.
MasterCard’s Vast Ecosystem
The revenues are simply one aspect of a growing payment ecosystem that includes:
- 751 million MasterCard debit cards in circulation worldwide at the end of Second Quarter 2017, Statista reported. Note this figure does not include the United States.
- 583 million MasterCard credit cards in circulation at the end of Second Quarter 2017, according to Statista.
- If these figures are accurate there were 1.334 billion MasterCard cards in circulation outside the United States in June 2017.
- MasterCard reported $14.5 billion in total processed transactions for third quarter 2016; up from $12.3 billion for the same period in 2015, Market Realist reported.
The number of cards outside the United States is particularly good news for MasterCard investors because the company generates around 69% of its revenues from international markets. More importantly, MasterCard experienced double-digit growth in those markets in 2016.
Future Growth Opportunities for MasterCard
Beyond that MasterCard has tremendous growth potential including:
- Cryptocurrency debit cards such as those offered by TenX, Shakepay, and Uquid. The cards currently on the market are Visa products, but TenX has hinted that it is planning a MasterCard debit card that will work with several different cryptocurrencies including DASH and Ethereum. An organization called Change Bank is planning a Cryptocurrency MasterCard that is supposed to be available on September 16, 2017.
- Mobile Payment Apps such as Apple Pay, Android Pay, and Alipay. The versions of these available in the United States and Europe work with MasterCard debit and credit cards.
- Peer to Peer payment solutions such as Venmo and Apple Cash which might work with MasterCard.
- Virtual credit and debit cards that can be used for payment at online retailers such as Amazon. A major opportunity is virtual cryptocurrency gift cards that individuals can use to shop in other nations.
- Markets in developing countries particularly China and India where credit and debit card use is only beginning.
Of these, I think mobile payment apps and cryptocurrencies are the biggest potential opportunities because they offer the potential to penetrate developing markets. Such solutions will be the gateway through which many new customers around the world enter the global financial system.
The cashless society might be years away in the United States but it is already appearing in countries such as India, Venezuela, China, and Kenya. Hyperinflation, lack of faith in government currencies and new technologies are giving rise to a generation of people who will have never used cash or plastic payment cards. Both MasterCard and its main rival Visa are well-positioned to tap that market.
Is MasterCard Making Money?
MasterCard’s bright future will be of little interest to hard core value investors whose main interest is the all-important question: “does it make money.” The answer provided by the latest round of financial numbers is yes.
Some evidence that MasterCard is making a whole lot of money includes:
- A net income of $4.375 billion on June 30, 2017. That number was up from $4.181 billion in March 2017 and $3.809 billion in June 2016.
- Steadily growing income. MasterCard has reported income growth in most quarters since 2013.
- A free cash flow of $1.375 billion on June 30, 2017.
- $6.959 billion in cash and short-term investments on June 30, 2017.
- $4.040 billion in cash from operations on June 30, 2017. This figure marked an increase over March 2017 when MasterCard reported $4.171 billion in cash from operations. It was down from June 2016 when MA reported $4.43 billion in cash from operations.
- Assets of $19.84 billion on June 30, 2017.
- A market capitalization of $141.89 billion on September 1, 2017.
- An enterprise value of $140.28 billion on September 1, 2017.
- A profit margin of 38.55% on 30 June 2017.
As you can see MasterCard is a little overvalued but I still consider it a value investment. Shareholders will not be complaining because MasterCard reported an astounding 74.98% return on equity on June 30, 2017.
MasterCard is a Widows and Orphans Stock
What’s more interesting is that MasterCard is inching close to widows and orphans stock country with a growing dividend. Its investors received a 22¢ dividend on July 5, 2017. That number marked a 3¢ increase over the 19¢ paid in October 2016.
MasterCard certainly meets criteria for a widows and orphans stock because it has a growing business that generates an enormous amount of cash. It also has a lot of potential for future growth yet pays a respectable dividend every quarter.
MasterCard provides another layer of safety in the form of international diversification. Since it operates around the world, MasterCard will be less vulnerable to economic downturns in the United States or Europe. That also puts the payment processor in a good position to cash in on growth in places like Africa or India.
An interesting added layer of diversification is that MasterCard is not dependent on any one industry because almost all businesses use its’ product: payment processing. If shopping habits change from mom and pop shops to big box stores or from big-box outlets to online retailers, MasterCard will still make money off the transactions.
If you are looking for a safe stock that’s likely to be a growing money maker for years to come MasterCard is a safe bet. Those who want to lock some retirement income into their 401Ks would be well-advised to add MasterCard to their portfolios.