Global Partnerships And Emerging Technologies Will Drive Future Expansion

Key Takeaways

• Strategic initiatives in payments and technology are expected to drive revenue growth through market expansion and enhanced transaction security.
  
• Expansion into commercial flows and emerging technologies is set to boost market share and earnings in high-growth sectors.
  
• Regulatory changes and geopolitical tensions could pressure revenue growth and net margins through increased competition and operational costs.

Catalysts

A technology company, provides transaction processing and other payment-related products and services in the United States and internationally.

• Mastercard's strategic priorities, such as Consumer Payments, Commercial and New Payment Flows, and Services & Solutions, are expected to drive future growth. These initiatives are likely to boost revenue through market expansion and developing new revenue streams across various sectors.
  
• The acquisition of Recorded Future and partnerships in the crypto sector, including collaborations with Crypto.com and MetaMask, illustrate Mastercard's focus on enhancing its security and technology offerings. This is expected to improve net margins by leveraging high-margin services and increasing transaction security, thus attracting more users.
  
• Expanding partnerships and winning deals globally, as evidenced by agreements with ICBA Payments, Direct Express, and others, are poised to increase market share. This will drive revenue growth by adding more transactions through Mastercard's network.
  
• Mastercard's focus on emerging payment technologies, like tokenization and biometric solutions, is set to reimagine checkout processes and enhance security, which can increase transaction volume and improve revenue.
  
• The continued expansion into commercial flows and virtual cards, especially with partnerships like NatWest and Citi, is set to tap into an $80 trillion serviceable addressable market. This expansion is expected to increase earnings as these high-growth areas are further developed.

Mastercard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mastercard's revenue will grow by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.7% today to 47.3% in 3 years time.
• Analysts expect earnings to reach $18.8 billion (and earnings per share of $21.59) by about March 2028, up from $12.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.7x on those 2028 earnings, down from 37.5x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.9x.
• Analysts expect the number of shares outstanding to decline by 1.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Mastercard Future Earnings Per Share Growth

Risks

• Potential tariff implementations and geopolitical tensions could negatively impact cross-border transactions and thereby reduce revenue growth.
  
• Regulatory changes, particularly in the EU with initiatives like the European Payments Initiative, could increase competition and pressure net margins by disrupting Mastercard's market share.
  
• Rapid technological advancements and increasing reliance on technologies like blockchain and stablecoins present execution risks, which could incur higher operational expenses impacting net margins.
  
• The ongoing competitive pressures from local payment systems and emerging digital players could necessitate higher rebates or incentives, affecting net revenue yield.
  
• Significant fluctuations in foreign exchange rates and associated volatility could adversely impact net revenues and earnings translations, particularly impacting the transaction assessments line.

Valuation

• The analysts have a consensus price target of $618.264 for Mastercard based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $690.0, and the most bearish reporting a price target of just $466.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $39.8 billion, earnings will come to $18.8 billion, and it would be trading on a PE ratio of 34.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of $527.64, the analyst price target of $618.26 is 14.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.