Company introduction
Mastercard(MA) is a technology company in the global payments industry.
Mastercard is a payments network service provider that generates revenue from a wide range of payment solutions provided to customers. Revenue from contracts with customers is recognized when services are performed in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services (i.e., fees charged to customers). The Company disaggregates its net revenue from contracts with customers into two categories: (i) payment network and (ii) value-added services and solutions. The Company’s net revenue categories, payment network and value-added services and solutions, are recognized net of rebates and incentives provided to customers. Rebates and incentives can be either fixed or variable and are attributed to the category of revenue to which they pertain.
Payment network
Mastercard’s payment network involves four participants in addition to the Company: account holders (a person or entity who holds a card or uses another device enabled for payment), issuers (the account holders’ financial institutions), merchants and acquirers (the merchants’ financial institutions). Revenue from the Company’s payment network is primarily generated by charging fees to customers (issuers, acquirers and other market participants) for providing switching and other network-related services, as well as by charging fees to customers based primarily on the gross dollar volume of activity (GDV, which includes both domestic and cross-border volume) on the cards that carry the Company’s brands. As a payments network service provider, the Company provides its customers with continuous access to its global payments network and stands ready to provide transaction processing over the contractual term. Consideration is variable and is recognized as revenue in the period in which volumes and transactions occur.
Value-added services and solutions
The Company generates revenues from value-added services and solutions through either fixed or transaction-based fees. These services and solutions can be integrated and sold with the Company’s payment network services or can be sold on a stand-alone basis. These services and solutions primarily include cyber and intelligence, data and services, processing and gateway, ACH batch and real-time account-based payments and solutions, open banking and digital identity. Revenue from these value-added services and solutions is recognized in the period in which the related services and solutions are performed or transactions occur.
Profitability analysis
Mastercard ‘s net revenue reached $25 billion, $22 billion and $19 billion in fiscal year 2023, in fiscal year 2022 and in fiscal year 2021, respectively.
Mastercard ‘s net revenue in 2023 was up 13.7% year-on-year.
Mastercard’ s net revenue in 2022 was up 15.8% year-on-year.
Mastercard’ s net income was $11.2 billion, $10 billion and $8.7 billion for 2023, for 2022 and for 2021, respectively.
Mastercard’ s net profit margin was 45%, 45% and 45.8% in 2023, in 2022 and in 2021, respectively.
The net profit margin has been very stable in the past three years, but mastercard’ s net profit margin is lower than Visa’s net profit margin. Visa’s net profit margin has been more than 50%.
The net profit in 2023 was up 12% year-on-year.
The net profit in 2022 was up 15% year-on-year.
The growth rate of net income does not keep up with the growth rate of net revenue in the past two years.
Mastercard ‘s net cash provided by operating activities was $12 billion, $11.2 billion and $9.5 billion in 2023, in 2022 and in 2021, respectively.
The rate of net income to net cash provided by operating activities was about 1:1 in 2023, which indicate that the quality of earnings is high.
Liquidity and solvency analysis
Mastercard report total assets of $42.5 billion and $38.3 billion in 2023 and in 2022, respectively.
The total assets in 2023 was up 11% year-on-year.
Total liabilities was $35.5 billion and $32.3 billion in 2023 and in 2022, respectively.
Mastercard’ s debt ratio in 2023 was 83.5%, which is hight level of debt ratio, but mastercard ‘s solvency is strong.
Mastercard has a high level of cash flow, which can service debt.
Cash flow analysis
Purchase of property and equipment was $0.37 billion, $0.44 billion and $0.4 billion for 2023, for 2022 and for 2021, respectively.
Like visa, mastercard ‘s capital expenditure is minimal.
Purchases of treasury stock were $9 billion, $ 8.75 billion and $6 billion in 2023, in 2022 and in 2021, respectively.
Dividends paid were $2.16 billion, $1.9 billion and $1.74 billion in 2023, in 2022 and in 2021, respectively.
You could see that mastercard is generous for investors.
We hope that the company dose not repurchase stock at high prices.
Summary
Mastercard ‘s profitability has been very strong.
The level of cash flow is very good.
We think that mastercard’ s share price is overestimated and that mastercard is worth $150 billion.
Given the market price hit $438 billion, mastercard would plunge.
Visa(V): The net profit margin was very high and stable.
Disclaimer: The content is for reference only and does not constitute investment advice.