Number of processed transactions is increasing
MasterCard’s (MA) transaction processing fees are based on the number of transactions, and a growing number of processed transactions directly drives the company’s revenue growth. MasterCard forms ~2.2% of the Technology Select Sector SPDR Fund (XLK).
The graph below shows the growth in MasterCard’s number of processed transactions in each quarter. The graph also shows the growth in the number of MasterCard-branded cards, which grew from 1.2 billion at the end of 1Q13 to 1.5 billion at the end of 1Q15. In comparison, Visa (V) has a worldwide network of 2.4 billion cards.
Consistent revenue growth
The growth in gross dollar volume, processed transactions, and the number of cards resulted in healthy revenue growth for MasterCard in recent years. MasterCard’s revenues grew at a CAGR (compound average growth rate) of 14.4% since 2010. Its net income grew at a CAGR of 18.3% during the same period.
The graph below shows the growth in MasterCard’s net revenue and income since 2010.
MasterCard’s operating expenses consist of general and administrative, advertising and marketing, and depreciation and amortization expenses.
General and administrative expenses form MasterCard’s largest expense type, accounting for nearly 75% of the company’s total operating expenses. General and administrative expenses include personnel costs, professional fees, and data processing and telecommunications expenses.
MasterCard incurs expenses to support its network infrastructure and its computer and telecom system. Such expenses fall under the data processing and telecommunication expense category.
In the next part of this series, we’ll explore how a stronger dollar is impacting MasterCard’s results.