Mastercard (NYSE: MA) stock price has done well since going public in 2006 when it raised $2.4 billion. It has jumped by almost 12,000%, transforming it into one of the biggest companies in the world with a valuation of over $400 billion.
Mastercard has a good track record of beating Visa, the biggest player in the payments industry. Visa, which went public in 2008, has risen by 1,600% while Mastercard stock has jumped by almost 2,400% in the same period.
One of the best business models
Mastercard operates one of the best business models globally. In my view, I believe that it has the second-best model after Tether, the biggest stablecoin issuer in the world.
Tether simply issues stablecoins, receives funds from users, invests it, and then returns it to them whenever they need it. Recent reporting shows that Tether made more money than Blackrock, a company that holds over $10.7 trillion in assets under management.
Mastercard and Visa also have a great business model in that they provide a technology that is used by people from around the world. This model is made up of four key players: cardholders, merchants, issuing banks, and acquiring banks.
In this, Mastercard partners with issuing banks, which then give out its cards to the cardholders. In most cases, customers rarely care about whether the card is issued by Visa or Mastercard.
The cardholders will then use the card to make payments wherever the card is accepted and Mastercard takes a small transaction fee. The same happens in terms of a credit card, where, these funds are offered by the issuing bank, meaning that Mastercard carries no liability.
As a result, Mastercard – and Visa – have some of the highest margins in the industry. Data shows that Mastercard has a gross profit margin of 100% and a net income margin of 46%. Visa’s margins are 97.80% and 54%, respectively.
The two companies have done well over the years as more people have embraced card payments in the past few years. Analysts believe that the use of physical cash will continue to dwindle over time.
Mastercard and Visa are hard to disrupt. While countries like Russia, India, and China have launched their alternatives, data shows that they maintain a healthy market share.
Mastercard is still growing
The most recent financial results showed that Mastercard is still growing. Its revenue rose by 11% last quarter to over $7 billion while its net income came in at $3.3 billion. This growth happened because of higher volume of transactions, which surged to over $2.4 trillion or $26 billion a day.
For the first six months of the year, Mastercard’s revenue rose by 11% to $13.3 billion while its net income stood at over $6.3 billion.
Mastercard has been a great company in terms of shareholder returns, in the first half of the year, it repurchased shares worth over $4.6 billion and paid $1.2 billion in dividends. It still has over $8.2 billion in share repurchases.
These repurchases have led to a sharp drop in the number of outstanding shares and an increase in earnings per share. Total outstanding shares have dropped from over 1.05 billion in 2017 to below 925 million.
Its basic earnings per share has jumped from about $3.6 in 2017 to $11.85 in the last financial year.
To be clear: Mastercard still has some issues that could affect its revenue growth. The most notable one is regulations in the payment industry. In the US, Visa and Mastercard reachded a $30 billion settlement with the Federal Trade Commission (FTC).
According to the settlement, the two firms agreed to limit credit and debit card fees for merchants. The FTC hopes that it will lead to lower prices for consumers and increase competition in the industry.
The same rules are being applied in other countries, especially in Europe. While these are big headwinds, I believe that their long-term impact on Visa and Mastercard will be minimal and that their growth will continue. Also, the company recently launched a new crypto debit card as it seeks to benefit from the sector.
Mastercard stock price analysis
Turning to the weekly chart, we see that the MA share price has done well in the past few months. It recently crossed the important resistance point at $488.8, its previous all-time high.
By moving above that level, the stock invalidated the double-top chart pattern whose neckline was at $428. In technical analysis, this is one of the most popular bearish chart patterns.
The stock has remained above the 50-week and 100-week moving averages while the Relative Strength Index (RSI) has moved above the overbought level. Also, the Relative Vigor Index (RVI) has pointed upwards.
Therefore, the Mastercard stock price will likely continue rising as bulls target the next resistance point at $500. After that, the shares will surge to the next point at $550.
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