The company makes money when cardholders (individuals, businesses, organizations, etc.) swipe or use its network — a small little lick off the ice cream cone, as Tom Gardner has said. That deep network produces a very healthy and stable competitive position that produces outstanding profit margins and exceptional returns on capital invested into the business.
Mastercard isn’t a secret, yet we believe the stock has moneymaking if not market-beating potential as consumers start spending again post-COVID-19. As we all stayed at home and changed some of our spending habits last year (and the U.S. monthly personal savings rate spiked to a high of 33%!), Mastercard’s revenue, unsurprisingly, dropped. Cross-border activity in particular fell by 40% this time last year. But now we’re starting to see improvement. During the first quarter, worldwide dollar volumes across Mastercard’s network improved by 8% (versus 1% in the fourth quarter), with U.S. spending jumping 14%.
Importantly, considering how global Mastercard is, cross-border activity is ramping back up. First-quarter cross-border fees fell 23% (versus a 40% drop in the fourth quarter) but have been steadily improving. In fact, by April, cross-border volumes were back to 83% of 2019’s activity.
With the ramping back up of consumer and business spending that we’re expecting, Mastercard is a great way to invest in the transactional economy. A fully cashless society may still be years away, but we’re moving in that direction. Mastercard’s deep competitive position, brand power, impressive culture, and outstanding financial power give us the confidence that investors will make money and do well by owning the stock over the next five years.
