Investing in MasterCard through ETFs
MasterCard is considered a growth stock based on its high price-to-earnings ratio, and growth-focused ETFs hold it widely.
MasterCard focuses on growth in its core business of credit, debit, prepaid offerings, and processed transactions. It seeks to diversify its customer base, including smaller merchants and consumers who still use cash and checks.
When most currencies fall against the US dollar, MasterCard’s revenues take a hit despite its diversified geographies. Revenues in local currencies translate into smaller revenues in US dollars.
MasterCard’s revenues grew at a CAGR of 14.4% since 2010. Its net income grew at a CAGR of 18.3% during the same period.
The US accounts for 32% of MasterCard’s total gross dollar volume. The Asia-Pacific, Middle East, and Africa contribute 31%, and Europe accounts for 27% of the total volume.
MasterCard’s revenue sources include transaction processing fees, as well as fees for fraud-prevention products and services.
MasterCard faces competition from newer payment providers such as PayPal, AliPay, and Amazon.
Cash and checks constitute ~85% of the retail payment transactions worldwide. However, electronic payment methods are increasingly replacing cash and check payments globally.
MasterCard’s digital platform MasterPass streamlines the retail sale and purchase process for the consumer and the merchant.
MasterCard enables consumers and businesses to use electronic modes of payment instead of cash and checks. MasterCard’s payment network is the second largest in the world, behind industry leader Visa.
Visa’s operating revenues primarily come from service, data processing, and international transaction revenues.
Visa (V) trades at a PE (price-to-earnings) ratio of ~35, which is relatively higher than that of American Express (AXP), MasterCard (MA), and Discover Financial (DFS).
The number of processed transactions directly drives Visa’s (V) data processing revenues, which account for nearly one-third of the company’s total revenues.
All key broad market ETFs hold Visa (V) due to its large market capitalization.
In January 2015, Visa (V) declared a four-for-one split of its Class A common stock.
Visa (V) has recorded consistent revenue growth over the last few quarters.
Visa’s open-loop payments network connects and manages the exchange of information between issuers and acquirers.
Visa operates the world’s largest payment processing network, VisaNet, with a total transaction volume of $6.3 trillion in 2014.
American Express (AXP) expects it’s per share earnings to be significantly adversely affected year-over-year due to the cumulative effect of several factors.
American Express is widely held by financial sector ETFs due to its large market capitalization. The key financial sector ETF holding its stock is the Financial Select Sector SPDR Fund.