Will Mastercard's (MA) Revenues Gain From Solid Holiday Sales?

As a leading payment facilitator, Mastercard Inc. MA has been gaining from a shift in payments to online and digital modes from the physical ones. The transition to electronic payment has been consistent from the past many years and the COVID-19 episode further accelerated this trend.

Per the National Retail Federation (NRF) forecast, the 2020 holiday sales season is expected to be very strong. Additionally, since most people are doing much of their shopping online, Mastercard’s U.S. transaction volumes are likely to witness a surge in the fourth quarter of 2020.

According to NRF, holiday sales (in November and December) will grow 3.6% to 5.2% this year from the last five-year average of 3.5% and the reading of 4% recorded last year. Also, social distancing and preference for digital channels will lead to a 20-30% increase in non-store sales (including e-commerce, curbside pickup, etc.).

Business from the United States is faring better for Mastercard during COVID-19 times after experiencing a blip in the initial months (March, April) of the lockdown. With gradual relaxation of restrictions, business volumes are picking up as evident from growth in Switched Volumes and Switched Transactions.

Notably, for the week ending Nov 21, management announced that overall Switched Volumes rose 3%, primarily driven by higher contribution from the United States (up 6%) compared to the rest of the world, which was up just 1%. Per management, business growth in the United States was attributable to the recent strength in holiday retail spend.

The significant increase in online shopping is likely bump up card-not-present (CNP) transactions, which occur in absence of both the cardholder and the credit card. This is commonly applicable to orders placed remotely over the phone or via fax, internet or email.

Notably, the rapid shift from cash to digital the modes of payment bodes well for Mastercard as this is mostly preferred by the next-gen consumers. Also, the coronavirus episode prompted the senior citizens to get accustomed to the digital method, given its high flexibility, ease and security. Therefore, purchases made through digital mediums are here to stay.

Even after the vaccine enters our lives, some of the changes introduced by the pandemic seem everlasting and payment via the digital mode is one such phenomenon. Other stocks in the same space including American Express Co. AXP, Visa Inc. V and Discover Financial Services DFS are also set to benefit from the recovery in international travel.

Mastercard has rallied 15.3% year to date compared with the industry’s growth of 6.8%.

The stock carries a Zacks Rank #4 (Sell), currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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