Mastercard Inc. MA has provided an update on second-quarter 2020 operating metrics, which showed stability in its business volumes.
The company’s cross-border business suffered in the first quarter, due to lower spending levels following the coronavirus outbreak.
Nevertheless, Mastercard is experiencing the transition in phases from stabilization to normalization in some markets, driven by the gradual reopening of businesses.
The stabilization phase is characterized by the steady subsidence of spending to new lower levels, attributable to adherence to social-distancing and mobility limitations.
The next phase is normalization wherein governments gradually relax mitigation practices and the environment becomes safer for the citizenry, enabled by the broader availability of testing and contact tracing as well as improved therapeutics even before the rollout of an effective vaccine. This phase is likely to be characterized by a gradual path to recovery in spending to scale to the pre-COVID levels. The company anticipates a sporadic rebound in spending during this phase.
The company expects some sectors, particularly where there is pent-up demand, like home improvement, clothing, healthcare, domestic and intra-regional travel to resume normalcy earlier. Other areas like mass entertainment and long-haul travel will probably take longer time to bounce back. It’s possible to see quick signs of normalization in certain sectors and geographies throughout the rest of this year.
Therefore, the company’s Switched Volume and switched transactions are showing an improving trend since April, partly owing to the relaxation of social-distancing measures in several markets and the positive impact of fiscal stimulus in the United States. We note that switched transactions, which were down 20% in April, improved to a decline of 7% in the week ending May 28.
Mastercard’s cross-border volume continues to be impacted by infrequent travel, although it slightly bettered over the last week, partly on a resurgence in intra-Europe travel. Thus, cross-border volumes, which contracted 50% in April, saw a 44% plunge in the week ending May 28.
The industry player is also witnessing strong demand for its Data & Analytics and Cyber solutions. For the second quarter, it expects services growth, which provides a nice diversification to the company’s revenues, to continue outperforming its core products and aid growth.
Mastercard managed to deliver a decent performance in the first quarter with an earnings beat of 6.4% despite the COVID-19-led business disruption, which depressed its cross- border revenues.
Mastercard’s strategy to invest in organic and inorganic growth opportunities bodes well. Its strong brand name, vast business network, expanded global presence, heavy investment in technology, solid partnerships and accretive acquisitions should help it easily navigate the current volatile economic environment.
Year to date, the stock has gained 4% compared with its industry’s growth of 3.7%.
Although this price performance looks a little bearish when compared to Visa Inc. V, which has increased 6.3%, the same came in against the stock movements of American Express Co. AXP and Discover Financial Services DFS, which have declined 8.7% and 27.7%, respectively, in the same time frame.