The Profit at MasterCard (MA)

The profit at MasterCard (MA) proves credit-card providers could be among today’s value investments.

Notably, MasterCard’s 4th Quarter 2018 Gross Profit equals its revenues for the same period. Correspondingly, MasterCard (NYSE: MA) records revenues of $3.807 billion for 4th Quarter 2018. Thus MasterCard achieves a gross margin of 100% for 4th Quarter 2018.

Moreover, the gross margin translates into a lot of cash at MasterCard. For instance, MasterCard reports and operating income of $1.234 billion and a net income of $899 million for the same period.

The Profit at MasterCard (MA) equals a lot of cash

Value investors will like  the profit at MasterCard (MA) because the company is generating a lot of cash.

For example, MasterCard records an operating cash flow of $1.332 billion and a free cash flow of $1.209 billion for 4th Quarter 2018. However, those numbers were down from $2.367 billion and $2.237 billion in 3rd Quarter 2018.

Finally, MasterCard had $7.762 billion in cash and equivalents and $1.696 billion in short-term investments on New Year’s Eve 2018. Thus, MasterCard had $9.458 billion in the bank at the end of 2018.

Is MasterCard a Good dividend investment?

Not surprisingly, many people will ask if MasterCard is a good dividend investment. The answer is perhaps, because MasterCard offers a dividend yield of 0.59%, an annualized payout of $1.32 and a payout ratio of 20.6%

However, I do not think the 33¢ dividend scheduled for May 9, 2019, justifies the $223.84stock price on February 27, 2019. In fact, I think Mr. Market overprices MasterCard at $223.84. Nor does the seven years of dividend growth at MasterCard, justify the ridiculous stock price.

However, the cash makes MasterCard a safe value investment. In addition, I consider MasterCard a great long-term investment because of its growth. For example, MasterCard’s revenues grew at a rate of 14.95% during 4th Quarter 2018.

Thus, you will not lose money invested in MasterCard but you might not make much off of it. On other hand, MasterCard’s future growth projects are good. In particular, Big Tech is driving MasterCard’s growth.

How Apple is Helping MasterCard Grow

For example, Goldman Sachs (NYSE: GS) and Apple (NASDAQ: AAPL) are developing an Apple branded MasterCard.

Interestingly, MasterCard will pair the card with new iPhone financial management software, Bloomberg News claims. Notably, the Apple-branded MasterCard is Goldman Sachs’ first foray into consumer credit cards.

However, the Goldman Sachs/Apple MasterCardd could be a moneymaker because they target it at “Apple Zealots.” To explain, Apple Zealots is apparently MoffettNathanson analyst Lisa Ellis’s euphemism for Apple Zombies.

Notably, Apple Zombies are willingly to pay more for outdated technology because it carries the Apple brand name. Under those circumstances, a credit card for Apple customers could be a moneymaker.

In addition, an Apple MasterCard could generate real money if it offers rewards points that offer discounts on electronics at the Apple Store. Thus, the popularity of Apple Pay; which Target (NYSE: TGT) is now accepting is driving MasterCard’s growth.

Digital Wallets could be the Key to MasterCard’s Growth

Additionally, PayPal’s (NASDAQ: PYPL) fast-growing Venmo is also helping MasterCard grow.

In fact, PayPal now offers a Venmo MasterCard. Notably, the Venmo MasterCard allows users to make purchases at brick and mortar stores with founds transmitted by the peer-to-peer (P2P) app.

Plus, Venmo users can make cash withdrawals from ATMs with the MasterCard. Moreover, users can load cash to Venmo accounts via the MasterCard at ATMs, Fortune reports.

 

Venmo is a major growth opportunity for MasterCard. Specifically, Venmo’s total payment volume grew by $8.5 billion in 2018. In detail, Venmo had a payment volume of $10.4 billion in 4th Quarter 2017 and $19 billion for 4th Quarter 2018, Statista calculates.

MasterCard is a Growth Stock

Therefore, MasterCard is a growth stock because of innovative payment solutions like Venmo and Apple Pay.

I expect MasterCard to deliver a steady level of revenue growth for the foreseeable future. However, I also suspect MasterCard will remain overvalued for sometime to come.

Thus, I currently classify MasterCard (MA) as a stock to watch rather to buy. My advice is wait until MasterCard’s price falls below $150 to buy it.

About the author

Daniel Jennings


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