Friday, October 31, 2014

MasterCard (MA) hits another earnings home run and makes strategic investments {Earnings Commentary}

Happy Halloween & Happy day for MA shareholders!

The 'future' of MasterCard, picture courtesy of TechCrunch

MasterCard(MA) announced third quarter earnings for year 2014 bright and early yesterday. I am not not sure whether the two leaders in payment processing technology have agreed to report earnings right after another but this was in fact the case. Less than 24 hours after Visa earnings were announced along came MasterCard with another home run in earnings announcement.

Original Investment Thesis

If you follow the blog you know that I just recently purchased shares of MasterCard and have owned shares for less than a year. Check out the article here where I talk about why I decided to start a position. The stock is up over 11% overall in about 4 months. After earnings yesterday, the stock was up over 7% in just one day.

Highlights of the Earnings Call

  • Net income for third quarter 2014 reported to be $1 billion, an increase of 15% in comparison to same quarter last year.
  • Net revenue for the quarter came in at $2.5 billion, up 13% in comparison to same quarter last year.
  • Worldwide purchase volume increased 11% year over year to $843 billion
  • Operating income increased 14% year over year, resulting in an operating margin of 56.7%
  • CEO Ajay Banga also announced that operating expenses increased 12% to $1.1 billion in comparison to same quarter last year mainly a result of strategic investments and acquisitions. So far, the strategic investments have contributed to the 9% increase in growth for the company. Company also reported "other expenses" of $2 million (in comparison to "other income" of 6 million year over year).

My Two Cents

Felt this picture would be helpful in illustrating the future prospects for card transactions...

Two facts that caught my eye the most from this earning calls were: 1. The company's emphasis on making strategic investments for continuous growth and development. 2. The increase in operating margin to 56.7%-- in simpler terms, this means that MasterCard is now getting about $0.57 per dollar of sales. That percentage is pretty significant and is actually up from the 54.8%  previously announced for 12-month ending June 30, 2014. I have a lot of confidence in the payment processing leaders. Just the first picture above {courtesy of techcrunch on the future of MA) and reading about its strategic investments comes to show how the company refuses to stay behind and are making strides to remain relevant and at the forefront of the industry. 

I have to admit that I wasnt noticing much movement for several months since I purchased shares.I wondered why the stock price was showing so much resistance (stalling around the ~$73 range or so). I would look up any 'relevant news' that would explain it, and nothing significant would come up. The price even came down to less than my original purchase price several times. Nonetheless, I'm glad that my instincts were right in knowing that sooner or later the stock market and stock price would catch up and reflect my strong believe in this company. The stock is trading at nearly $85 as of the publishing of this post. Patience is one of the most important aspects of long term investing and I have a long way to go with this one. As mentioned, I've only been a part-owner of MasterCard for about 4 months. Excited to see where this takes me.

....I also get $0.44 per share every 3 months (yield of 0.60%). Perhaps not as higher yield in comparison to Visa but I have to admit I like the way the company is using the money towards strategic R&D and continuous growth. Call me the Dividend Diva. 

Tell me, how many cards with the MA logo do you own? What are your thoughts on MasterCard as a company?

Thank you for reading.

Cheers to Profits,

Disclosure: currently a shareholder of both, MA & V.