Understanding Three Crucial Factors before Purchasing Visa Shares in the Current Market
Mastercard (M 1.81%) rules the roost in the credit and debit card payments sector, processing more transactions than any other competitor in 2023. Chances are, you've got a card with its logo in your wallet right now. This dominant market position has led to a share price that's surged an impressive 1,430% over the past 15 years.
This investment goldmine is definitely worth considering for any long-term investor. Before you dive in, though, here are three critical facts about Mastercard.
Beating analyst forecasts
Mastercard reported its financial results for the quarter ending September 30 (fiscal fourth quarter of 2024), and it outperformed Wall Street analyst estimates. Total revenue stood at $9.9 billion, up 12% year-over-year. This growth was fueled by an 8% increase in total payment volume to over $4.2 trillion in the quarter.
Cross-border volume saw a 13% increase compared to Q4 2023, a positive trend for the company. As Mastercard CFO Michael Mieitivele noted on the Q4 2024 earnings call, "our data does not indicate any significant change in consumer behavior across different segments from the last quarter".
On the profitability side, Mastercard also exceeded expectations. The company produced $5.4 billion in net income in the quarter, marking a 14% year-over-year increase. This was bolstered by $5.9 billion spent on share buybacks during the three-month period, resulting in a 17% year-over-year increase in earnings per share (EPS).
For fiscal 2025, the leadership team anticipates revenue growth in the high-single-digit to low-double-digit ranges, alongside EPS growth at the high end of low double digits. These targets are consistent with Mastercard's historical performance.
Two-sided market structure
In essence, Mastercard's business model can be summarized as a two-sided market. The company facilitates transactions at over 150 million merchants worldwide. As of September 30, there were an astounding 4.6 billion Mastercard cards in circulation globally.
This immense scale has direct benefits for Mastercard, generating network effects that provide an economic moat. The growing number of cards means merchants see significant value in accepting Mastercard payments. Furthermore, with so many acceptance locations, consumers value having Mastercard cards on hand.
Picture the challenge of establishing a rival payments network from scratch to challenge Mastercard. It would be extremely hard to sign up merchants with no cardholders, and vice versa. This favorable scenario lends credibility to the belief that Mastercard won't be disrupted anytime soon.
Critics might point to the emergence of various fintech services in recent years. However, these services haven't hampered Mastercard's steady revenue and earnings growth year after year. In fact, fintech services have only served to boost the adoption of digital transactions.
Persistent growth tailwinds
The rise in digital and cashless transactions is what has been powering Mastercard's long-term growth trajectory. According to Pew Research Center, 58% of Americans still use cash for some or all of their weekly transactions (data from 2022). This high percentage of cash usage in the world's largest economy indicates that there's still plenty of room for digital and card payments to grow in developed economies, not to mention emerging markets.
Mastercard is also strategically focusing on what its management calls "new flows." These include person-to-person, business-to-business, and government-to-consumer transactions. New flows contributed a massive 22% year-over-year increase in revenue in the latest quarter, nearly double the overall growth rate. If this trend continues, it could significantly impact Mastercard's financial performance in the future.
Given Mastercard's impressive financial performance and growth in digital transactions, investing in its stock could be a profitable venture for long-term investors. For instance, its net income increased by 14% year-over-year during the recent fiscal quarter, boosted by significant share buybacks.
Furthermore, Mastercard's business model, with its two-sided market structure, provides it with a strong economic moat, making it less vulnerable to disruption. The company's scale, with over 150 million merchants and 4.6 billion cards in circulation, creates network effects that benefit both merchants and consumers, making Mastercard payments a popular choice.
