Mastercard Inc. shares are rising Wednesday after the payments titan delivered new growth targets for the next few years and detailed the “untapped” opportunities it sees within payments and beyond.
The company expects to grow net revenue at a “high-teens” percentage compound annual rate from 2022 to 2024, it announced in conjunction with its Wednesday investor-day event. Mastercard
is also looking for a minimum annual operating margin of 50% over that span, and it anticipates a “low-twenties” compound annual growth rate on earnings per share.
The targets struck Baird analyst David Koning as “strong particularly given investors fear new fintech, regulation, and pace of [cross-border] recovery,” he wrote in a note to clients. The revenue forecast was “better than consensus implies.”
Mastercard’s outlook “help[ed] to affirm our view that the company’s growth prospects have become even more attractive post-pandemic,” added Barclays analyst Ramsey El-Assal.
Shares of Mastercard are up 3.8% in Wednesday trading.
Mastercard will be looking to capture new growth avenues in payments, where it sees a $255 trillion total addressable market with “significant untapped opportunity,” per the company’s investor presentation. Within that market opportunity, Mastercard sees room to grow its role in consumer payments through an acceleration of digital adoption and the introduction of new use cases. The company is also upbeat about its potential in areas like remittances, commercial transactions, and bill payments.
There is also ample room to further card adoption, Chief Financial Officer Sachin Mehra told MarketWatch. Aside from “straight-up geographic diversification,” Mastercard sees opportunities to increase adoption among smaller merchants, even by reaching “micromerchants” who can use their phones as a means to accept card payments.
More generally, advancements in connectivity present further opportunities for Mastercard, noted Chief Product Officer Craig Vosburg. Amid a “massive proliferation in connectivity driven by 5G technology,” more devices can start enabling commerce, he said, whether they’re in smart cars or smart homes.
Mastercard has to tap these opportunities while being mindful of using “the right degrees of security, authentication, and fraud-management capabilities,” he said. That ties into the payment giant’s growth aims for its services business, which is expected to bring in more than $6.5 billion in revenue this year.
Services represent a rapidly expanding portion of Mastercard’s business and are expected to account for about 35% of Mastercard’s revenue this year, up from a “mid-twenties” contribution in 2018.
Mastercard is looking to capitalize on heightened interest in fraud protection amid the rise of digital commerce. Whereas in-person store clerks could try to match a user’s credit card to an ID in the case of suspected fraud, the digital world presents unique challenges, Mehra told MarketWatch.
“It’s about finding a space where a structural change is taking place and going after it with the right set of capabilities,” he said. Mastercard believes it it well positioned to deliver valuable services because it offers application-programming-interface (API) connectivity that can deliver fraud scores in nanoseconds, he said. The company also has a wealth of data from different financial networks that give Mastercard “high confidence” in the accuracy of its scores.
Mastercard further plans to enhance its positioning through an embrace of newer networks beyond the traditional card rails. The company has been diving deeper into open banking, which makes it easier for consumers to link their financial data to other services.
Though Mastercard is already generating revenue from open banking and identity solutions, Mehra noted that “if it doesn’t scale it doesn’t matter.” To that end, the company continues to invest in these new networks while also looking to integrate them more into Mastercard’s core payment offerings.
The company has been seeking to get more involved in the world of buy-now pay-later purchasing and announced in a Wednesday release that it will work with a series of new partners, including American Airlines Group Inc.
and Fiserv Inc.
on its installment efforts.
Mastercard’s open-banking work helps play into the BNPL initiative, Vosburg told MarketWatch. Lenders can “incorporate entirely new data sets” into their underwriting decisions, taking into account things like cash flows instead of credit scores, provided that consumers give permission to share this data.
The stock has lost 2.8% over the past three months as the S&P 500
has risen 4.8%.