Agent Pay Launch Will Redefine Digital Commerce Worldwide

Key Takeaways

• Mastercard's digital commerce innovations and strategic partnerships are driving revenue growth and expanding net margins through high-demand payment technologies.
  
• Expansion in emerging markets and growth in value-added services strengthen market share and promise stable, recurring revenue streams.
  
• Revenue growth may be hindered by geopolitical tensions, potential migration of key accounts, and regulatory challenges in digital assets and cross-border transactions.

Catalysts

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

• Mastercard's innovations in digital commerce, including contactless payments and tokenization, are creating foundational growth opportunities. The launch of Agent Pay is poised to redefine commerce in the AI era, enhancing the potential for revenue growth.
  
• Strategic partnerships with global entities like OpenAI, Microsoft, and various regional banks are expanding Mastercard’s reach and facilitating new payment technologies, potentially driving revenue and increasing net margins through innovative, high-demand solutions.
  
• The focus on crypto payments and collaborations with platforms like Kraken and OKX are opening new revenue streams. This integration of stablecoin settlement and cryptocurrency card issuance could significantly boost cross-border payment volumes and earnings.
  
• Expansion into emerging markets, illustrated by partnerships in regions like Africa and Latin America, is poised to capture secular growth opportunities. This geographical diversification strategy could lead to increased market share and revenue growth.
  
• Continued growth in value-added services and solutions, particularly around security, digital identity, and AI integration, promises stable, recurring revenue streams. These high-margin services are likely to support net margin expansion and earnings growth.

Mastercard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mastercard's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.2% today to 47.0% in 3 years time.
• Analysts expect earnings to reach $19.2 billion (and earnings per share of $22.37) by about May 2028, up from $13.1 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 33.1x on those 2028 earnings, down from 38.6x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 2.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Mastercard Future Earnings Per Share Growth

Risks

• Consumer and business sentiment has weakened due to concerns about tariffs and geopolitical tensions, which could negatively impact Mastercard's future revenue and earnings.
  
• The potential migration of Capital One's debit portfolio to Discover could adversely affect Mastercard's payment volume and consequently revenue.
  
• Resilience in the consumer sector is assumed in the financial guidance, but weakened sentiment and economic uncertainty present risks that could impact future net margins.
  
• Continued reliance on cross-border volumes, despite diversification, carries risks from potential global travel disruptions or geopolitical issues, impacting Mastercard's revenue growth and earnings.
  
• Regulatory uncertainty around digital assets and stablecoins could hinder the expansion of Mastercard's crypto payments initiatives, affecting the adoption rate and potential future revenue streams.

Valuation

• The analysts have a consensus price target of $614.792 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 $685.0, 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 $40.9 billion, earnings will come to $19.2 billion, and it would be trading on a PE ratio of 33.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $558.99, the analyst price target of $614.79 is 9.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.