MasterCard Gets Lift from Transaction Volumes Growth

November 7th, 2011 by Trefis Team
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MasterCard (NYSE:MA) reported a 38.4% increase in its third quarter earnings on the back of growth in spending and credit and debit card transactions. The company saw net revenue growth of 27% and its fourth consecutive quarter of double-digit volume growth. [1] As expected, the strongest growth in volumes came from Latin America, Asia-Pacific, Middle East, and Africa. The nearly 14% volume growth in the U.S. was not expected because of persistently high unemployment rates and weak consumer sentiment. The volume growth trends mirror those reported by competitor Visa (NYSE:V) last week, as both companies benefited from higher spending despite growing fears that economic pressures will hurt consumers (see Growth in Card Usage Globally Lifting Visa’s Outlook). Discover Financial (NYSE:DFS), Capital One (NYSE:COF) and American Express (NYSE:AXP) also stand to benefit from this spending growth.

We have updated our price estimate for MasterCard’s stock which now stands at $353, which is slightly below the current market price. The updated price estimate takes into account higher than anticipated growth in gross dollar volume and number of processed transactions.

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Growing volumes

Transaction volumes are important for MasterCard as the company earns most of its revenues in terms of fees for routing transactions. In the U.S., growth in transaction volumes was driven by the company winning business deals and strong debit card spending growth. Inflationary pressures such as higher gas prices and food inflation also contributed to higher spending in the third quarter. In Latin America, Asia Pacific, Middle East and Africa, growth is largely fueled by the migration of cash to electronic commerce. MasterCard’s strong results indicate that even if consumer confidence is affected by global economic concerns in these regions, that impact should be more than offset by the shift to debit and credit card transactions from cash. We expect that emerging economies will boost the number of transactions processed by MasterCard to north of 50 billion by the end of our forecast period.

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Notes:
  1. MasterCard Incorporated Reports Third-Quarter 2011 Financial Results, Company Press Release, Nov 02, 2011 [↩]