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What Could Drive Mastercard’s Performance?

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Apr. 17 2018, Updated 9:02 a.m. ET

Trade war impact

After the announcement of the imposition of tariffs by President Donald Trump, fears regarding a trade war gripped investors. The expectation was that the industries that were directly or indirectly dependent on the targeted goods would see the negative impact of the tariffs.

However, another concern relates to the increase in the prices of goods as a result of increased costs. Increased prices could lead to inflation, which could benefit payment technology companies (XLF) such as Mastercard (MA) and Visa (V).

Mastercard is expected to witness upward momentum in 2018 primarily aided by its focus on the completion of transactions via mobile phones while maintaining the level of security desired by users.

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E-commerce

As per the United States Census Bureau, compared to 3Q17, total retail sales amounted to $1.3 trillion in 4Q17, which reflects a rise of 2.7%. Of these sales, e-commerce sales accounted for $119 billion, or 9.1%. Compared to 3Q17 and 4Q16, e-commerce sales rose 3.2% and 16.9%, respectively, in 4Q17. An increase in e-commerce sales moving forward could improve the revenues of Mastercard and Visa.

The scope for e-commerce is expected to improve as newer businesses support the use of digitization for the execution of transactions. Moreover, the adoption of digitization by economies that rely on cash will also help Mastercard to achieve long-term success. Following demonetization in India, payment technology companies expect that focusing on India’s economy will help them.

While Mastercard has a profit margin of 31.3%, its peers Fiserv (FISV), Ally Financial (ALLY), and Total System Services (TSS) have profit margins of 21.9%, 16.1%, and 11.9%, respectively.

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