Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Commentary

Is MasterCard Unstoppable?

MasterCard (NYSE: MA) is continuing its steady march towards world credit-card domination the latest financial numbers indicate.

MasterCard enjoyed impressive growth in all the right numbers in 2016, ycharts data indicates. Some highlights of MasterCard’s year of growth include:

  • Adding $1.113 billion in revenues. Revenues exceeded $10 billion for the first time; rising from $9.667 billion in December 2015 to $10.78 billion at the end of the year.

  • Generating an additional $251 million in net income. The net income grew from $3.808 billion in fourth quarter 2015 to $4.059 billion a year later.


  • Expanding its total assets by $2.41 billion. MasterCard began the year with $16.27 billion in assets and finished with total assets of $18.68 billion.


  • Accumulating $8.335 billion in cash and short-term investments. MasterCard’s stash of cash grew by $1.597 billion in 2016. It started with $6.738 billion and finished with $8.335 billion in the bank.


  • Increasing its cash from operations by $437 million. MasterCard reported $4.043 billion in cash from operations on December 31, 2015. A number that grew to $4.48 billion a year later.

  • Not all the numbers were good. MasterCard’s free cash flow took a sudden downturn. It started the year with $946 million in free cash. That number grew to $953 million in June but fell to $890 million in December 2016.

These numbers make MasterCard a value investment because it has a lot of cash and float. They also show that its business model is capable of generating both cash and growth.

MasterCard’s business is Growing

Nor was it just cash that was growing at MasterCard. The number of Americans that used a MasterCard grew by 550,000 between Fall 2015 and Spring 2016, Statista data indicates. Around 92.16 million people in the United States swiped a MasterCard in Fall 2015. That number grew to 92.71 million a few months later in Spring 2016.

The company also reported some very impressive growth in the volume of payments processed, a MasterCard press release indicates. During fourth quarter 2016, the amount of payments MasterCard processed grew by 12% over 2015 to $1.2 trillion.

The latest numbers show just how impressive MasterCard’s business. The highlights include:

  • The number of MasterCard transactions grew by 12% to 13 billion.

  • The amount of cross-border transactions increased by 12% between fourth quarter 2015 and the same period in 2016.


  • Worldwide purchase volume increased to $883 billion.


  • There were 2.3 billion MasterCard and Maestro branded credit, debit and gift cards in circulation at the end of 2015.


Is MasterCard a good Investment?

All this shows that MasterCard has a really great business but is it a good investment? After all a strong case can be made that MA shares were overpriced at the $106.26 they were trading for on February 6, 2017.

The basic numbers show that MasterCard is a pretty good investment. It reported a profit margin of 33.85% and a diluted earnings per share number of 3.69 on December 31, 2016. More importantly MA shareholders received a return on equity of 69.46% during the fourth quarter of 2016.

MasterCard investors took home a dividend of 22¢ on January 5, 2017. That was a three cent increase over the October 2016 payment of 19¢.

More importantly, MasterCard’s dividend has been increasing by several cents a year for some time. It was 16¢ in 2015, 11¢ in 2014, 6¢ in 2013 and 3¢ in 2012. These numbers indicate that MasterCard’s dividend has grown by 19¢ in four years. That makes it a really good dividend and income stock in my book.

Why I like MasterCard

The main reason I like MasterCard is that it meets one of Warren Buffett’s most important value criteria. MasterCard is one of those businesses so simple even your idiot nephew could run it.

The business model is so simple that it is practically fool proof. People make purchases through its payment system with their balances. Then MasterCard collects a fee for the purchase.

What’s even better is that most of MasterCard’s marketing and promotion costs are absorbed by other entities. When Chase, PayPal or Walmart offers a MasterCard those companies handle the marketing chores, not MasterCard. MasterCard’s ecosystem and customer base grows and it does little or no work.

How Next Generation Payment Technologies will Help MasterCard Grow

Even next generation payment technologies such as Apple Pay and bitcoin help MasterCard grow. People can use payment apps and digital wallets such as Apple Pay, Walmart Pay, Chase Pay, Android Pay, Amazon Payments, PayPal, Microsoft Wallet, etc. to access their MasterCard balances without swiping their cards.

This might enable MasterCard to significantly reduce costs in the future because it might be able to eliminate the plastic; and go to an app based solution at some point in the future. The expense of mailing cards and statements, manufacturing cards, etc. might be eliminated while the system expands significantly.

MasterCard can even make money off of cryptocurrencies such as bitcoin. One of the most popular uses for bitcoin is the purchase of gift cards at websites such as Gyft and eGifter. MasterCard brand products are not available through such sights yet, but they might be if bitcoin achieves mainstream acceptance.

There are also a number of services such as Bitnation that sell Bitcoin MasterCard debit cards. BitPay also offers a bitcoin Visa (NYSE: V) debit card but not a bitcoin MasterCard. We will know that bitcoin has gone main stream – when MasterCard itself starts offering a bitcoin solution.

MasterCard is a really good investment that’s growing fast and its future looks bright. Persons looking for a financial stock to hold in their portfolios for a long time would be well served by MasterCard.