Dec 30, 2020 10:00 AM EST
Mastercard, a payment processing company, had a rough year like most other financial sectors' stocks. However, Mastercard's stock rebounded since there seems to be much excitement about the company's future.
According to The Motley Fool, the company started the year trading at $303.39 stock per share. Recently it hit $337.36, showing a gain of nearly 11.2%. Therefore, if you have invested $1,000 in Mastercard stock in January 2020, you would have almost $1,112 today.
Although it would not be a reason for you to retire earlier, you will still feel good regarding the gain, considering several milestones from the COVID-19 pandemic.
Meanwhile, the S&P 500 index increased to about 14.4% year to date, while the stock came up short of the benchmark. S$P 500 fared much better than the other companies in the financial sector.
Mastercard is more likely to benefit long term from the digital trends to develop due to the ongoing crisis, as per The Fool. For many people, Mastercard is a credit card company that makes loans, but it does not actually extend credit. Mastercard makes money by charging fees on payment transactions on its branded cards.
Earlier in the year, the company suffered from a reduced payment volume brought by limited physical interaction and lockdowns worldwide. But Mastercard can still take advantage of customers and merchants' shift to the world that relies more on digital payments.
Mastercard has been affected by the COVID-19 pandemic like many other businesses. The rise of unemployment and social distancing measures decreased consumer spending in many vital markets, including the financial sector.
The Fool reported Mastercard's revenue dropped to more than 10% amid the pandemic's first nine months. However, Mastercard's operational excellence and innovation culture took the company for strong growth in the years ahead. Here are the reasons why Mastercard seems to succeed, as per The Motley Fool:
Mastercard's management detailed its $235 trillion opportunities during its most recent Investment Community Meeting, which spans three specific payment markets. While cash and checks still represent more than double, at $68 trillion, the card-based transactions account for only $30 trillion or 13% of all payments.
Therefore, Mastercard has plenty of chances to grow its payment card business, including commercial and consumer products. But transfers from one bank to another, also called automated clearing house (ACH) transactions, represent a larger opportunity at $139 trillion.
Thousands of financial institutions and millions of merchants became connected to Mastercard's platform in more than 210 territories and countries. But this scale also creates cost advantages that increase in revenue can have outsized impacts on operating income. This enables Mastercard to achieve a higher margin than smaller competitors, allowing the company to outspend rivals in sales and marketing or research and development without compromising its profitability.
The world becomes more digital, and the pandemic accelerated the trend. The digital B2B payments are the new normal among North American businesses, as per Mastercard's research. To improve the cash flow, 77% of small enterprises adopted digital services like electronic invoicing and payment collection. This trend drives the adoption of B2B payment products, including Mastercard Track, that expands its customer base and grows its revenue.
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