No Slowing Down for MasterCard
Nov 9th 2011 9:43AM
Updated Nov 9th 2011 10:00AM
While most businesses are bearing the brunt of a slow-growing economy, the payment processing industry has defied the slowdown. The second-biggest payment network, MasterCard (NYS: MA) , posted robust third-quarter results in the wake of increased spending and transaction growth all over the world.
Investors pushed the stock to an all-time high. Let's dig deeper.
Swipe into the quarter
In spite of the general belief that consumer confidence is weak, use of debit and credit cards has been on the rise. MasterCard saw purchase volumes rise by 17% worldwide compared to its previous-year quarter. Moreover, the number of transactions processed by the company increased by 21%.
These favorable conditions explain the double-digit growth in MasterCard's top line and bottom line. The company made profits of $716 million, a whopping 38% increase compared to the previous-year quarter. Earnings per share of $5.63 comfortably beat analysts' estimate of $4.82.
It is interesting to note that increased transactions and money spent were not backed by higher borrowings. In the recent quarter, payment facilitators such as Visa (NYS: V) and American Express (NYS: AXP) observed that much of the additional money was spent by the rich on luxury items, or by people who already had money and did not need to borrow it. MasterCard saw a disparity in the growth of its debit and credit cards. While the debit card segment grew by a staggering 23%, credit cards saw a mere 7% growth.
What's on the cards?
With 85% of transactions worldwide still taking place in cash, the payment processing industry has immense growth potential. Low penetration of this industry in growing markets, such as Asia-Pacific, Middle East, and Latin America creates a huge growth opportunity.
MasterCard gets most of its revenue from international markets. Revenue generated abroad grew by 20% this quarter. The company has been tapping markets such as the Netherlands and Brazil for growth in transaction processing. Moreover, MasterCard's recent Italian expansion will add to its numbers in the future.
On the home front, MasterCard is grabbing more market share by signing contracts with clients that were once Visa's customers, like SunTrust Banks (NYS: STI) .
The Foolish takeaway
MasterCard posted a stellar quarter. With the new regulations capping debit card fees, it will be interesting to watch how it handles the pressure. In the wake of these changes, investors will want to stay updated. Click here to add MasterCard to My Watchlist to receive timely analysis on this stock.
At the time this article was published Navjot Kaur does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services have recommended buying shares of Visa. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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