September 25, 2020

Mastercard (MA) Witnesses Recovery in Most Business Markets

Mastercard Incorporated MA recently provided an update on third-quarter 2020 operating metrics, which showed decent recoveries in its business volumes.

Mastercard stated that the normalization phase is being witnessed in most markets, driven by the gradual reopening of businesses.

The normalization phase is characterized by gradual relaxation of social distancing measures and mobility limitations. Further, spending levels have witnessed a gradual improvement, wherein certain sectors are recovering at a faster pace than others.

Therefore, the company’s switched volume and switched transactions are showing an improving trend since July and August, partly owing to the relaxation of social-distancing measures in several markets. In fact, switched volume rose to 3% in the week ending Aug 28, which denotes a fair improvement from growth of 2% in the week ending Jul 28.

We note that switched transactions, which were up 3% in the week ending Jul 28, improved to 5% in the week ending Aug 28. The same transactions have also witnessed growth outside the United States.

Moreover, this Zacks Rank #3 (Hold) company has been witnessing consistent growth in categories related to travel and entertainment, which includes lodging, restaurants, auto rental, and gas. There are several regions outside the United States, which have started exhibiting year-over-year growth rates.

The COVID-19 pandemic triggered stringent restrictions on the travel and entertainment sector. Considering this, the company’s switched volume growth rates, excluding travel and entertainment, have reached the same level as it was in the fourth-quarter 2019 prior to the pandemic.

The company’s cross-border business suffered in the second quarter, owing to lower spending levels following the coronavirus outbreak.

In fact, Mastercard’s cross-border volume still continues to be impacted by infrequent travel. However, it has been improving slightly since early July. The improvement can primarily be attributed to resurgence in intra-Europe travel, where travel restrictions have been eased or lifted faster than other locations. Thus, cross-border volumes, which contracted 38% in the week ending Jul 28, witnessed a 35% plunge in the week ending Aug 28.

Shares of Mastercard have gained 16.4% in a year compared with the industry’s growth of 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s peers, namely, Visa Inc. V have rallied 10.2% in a year’s time, while that of American Express Company AXP and Discover Financial Services DFS have lost 13.5% and 34.8%, respectively, in the same time period.

We believe the company’s strong brand name combined with its strategy to invest in organic and inorganic growth opportunities bodes well. Based on the company’s strong fundamentals, Mastercard managed to deliver a decent performance in the second quarter with an earnings beat of 18.3% despite the COVID-19-led business disruption that hampered its cross- border revenues.

Also, Mastercard has been making every effort to bring about automation and greater efficiencies across the business payment ecosystem, considering the massive shift of the payments industry to the digital from its physical mode.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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