4 Key Underpinnings to MasterCard's Stock

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MasterCard ( MA ) is the second largest global payment solutions company in the world. It provides a variety of services to support the credit, debit and related card payments of over 24,000 financial institutions globally. MasterCard competes with Visa ( V ) and American Express ( AXP ). Below we look at the four most important division driving our $293 price estimate for MasterCard, which is around 17% ahead of the current market price.

Rise of Mobile Payments a Catalyst

The number of mobile payment users have been rising fast with 351 million users in 2009 which is estimated to reach 1.06 billion by 2014 at a compound annual growth rate of 20.5%. Global mobile payments transactions are expected to rise to $1.13 trillion in 2014 from $37.4 billion in 2009, at an annual growth rate of 98%. We expect this to benefit card companies like MasterCard, Visa and American Express.

The 4 Most Important Divisions for MasterCard

1) Transaction Fees - represents 32% of the company's stock value

MasterCard acts as a transaction processing service for its customers. All transactions made using MasterCard branded cards are authorized, cleared and settled by MasterCard. MasterCard also provides customers its network and technical infrastructure to carry out transactions in a fast and easy method. In exchange for these services, MasterCards charges its customers a transaction processing fee.

2) International Fees - represents 29% of the company's stock value

A major part of MasterCard revenues come from the fees it levies on cross-border transactions. A cross-border transaction is a transaction where the card holder's country  is different from the merchant's country. MasterCard levies a cross-border fee and a currency conversion fee for any transaction made outside the card-holder's country.

3) Assessment Fees - represents 21% of the company's stock value

Assessment fees are charged to the to the card issuing bank. They are based on the gross dollar volume ( GDV ) for a specific time period. The rates vary depending on the nature of transactions that generate GDV and by region.

4) Services Fees - represents 9% of the company's stock value

For our analysis, we have included acceptance development fees, warning bulletin fees, consulting and  research fees and other fees such as penalty fees, hologram and publications fees as services fees.

See our full analysis for MasterCard.



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



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AXP , GDV , MA , V

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