Mastercard's (MA) Business Markets Well Placed for Recovery

Mastercard Incorporated MA recently issued an update on first-quarter 2021 operating metrics. Shares of the company have lost 0.2% in the last day’s trading as of Feb 26, replicating the declines in broader markets.

Mastercard stated that a normalization phase is being witnessed in most markets domestically, while a handful of them have marched toward growth. For keeping an eye on COVID-related spending levels, the company introduced a four-phase structure last year comprising containment, stabilization, normalization and growth.

The latest operational update is clearly indicative of the fact that markets served by this leading payments processor have crossed the first two levels of containment and stabilization. With most markets being in the normalization phase and a few attaining growth, there is no doubt that Mastercard has started to overcome from the initial adverse effects of the pandemic. Consistent levels of spending gives a clear-cut indication that Mastercard is placed well on track on its path to recovery.

Starting with Switched Volume, the metric measures the number of times the company’s products were used to facilitate transactions. Though spending levels have remained relatively steady across the United States so far in first-quarter 2021, the same exhibited a slight rise during the first half of February on a year-over-year basis. Its performance in the United States has gained momentum from fiscal stimulus, partly offset by inclement weather in the week ended Feb 21.

In fact, overall growth in Switched Volume remained flat for the week ended Feb 21. Though lower contribution from the United States (down 1%) gave a blow to the metric, a meagre contribution from the rest of the world (up 1%) partly benefited the same.

We note that switched transactions indicate the number of transactions initiated and switched through the company’s network during the period. The metric, which was up 2% for the week ended Jan 21, slid 1% for the week ended Feb 21.

The COVID-19 pandemic triggered stringent lockdown orders, social-distancing measures and severe restrictions in the travel sector. Also, financial insecurities inflicted by the pandemic made people reluctant to spend on holidays. Though these restrictions have been somewhat eased, Mastercard’s cross-border volume still continues to be impacted by infrequent travel. Persistent pressure on the travel sector has been further highlighted by the fact that Mastercard expects card present and travel-related card-not-present (CNP) volumes to continue getting adversely impacted going forward.

Nevertheless, a CNP transaction occurs when neither the cardholder nor the credit card is physically present at the time of the transaction. These transactions are the need of the hour since the pandemic has propelled people to stay at home and carry out remote payments, thereby driving CNP volumes. Case in point, on excluding online travel-related spend, it expects to witness robust growth in CNP cross-border volumes.

The company’s cross-border volumes have been decently rising across Asia-Pacific and Europe, wherein people are slowly gaining confidence in travelling. Thus, cross-border volumes, which slipped 30% for the week ended Jan 21, witnessed a 27% plunge for the week ended Feb 21.

The cross-border business took a hit in fourth-quarter 2020 as well, as a result of lower spending levels on account of the coronavirus outbreak.

Shares of this Zacks Rank #3 (Hold) company have gained 15.4% over a year compared with the industry’s 6.2% growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa Inc. V is another company in the same space that has recorded growth of 10.5% over a year. However, EVO Payments, Inc. EVOP and The Western Union Company WU have declined 0.5% and 1.1%, respectively, in the same time frame.

Moreover, a rapidly growing digital economy has necessitated the need for automation across the business payment ecosystem, for which Mastercard has been partnering with several organizations and rolling out cost-effective solutions for tapping the current prospects in the global digital payments space. Riding on the company’s strong fundamentals, Mastercard managed to deliver a decent performance in the fourth quarter, with earnings beating estimates by 8.6% despite COVID-led business disruptions that hampered cross-border revenues.

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