Mastercard Inc. MA has announced second-quarter 2020 operating metrics, which reflected stabilization in business volumes.
The company’s cross-border business suffered in the first quarter, experiencing a decline of 1% due to lower spending levels induced by the coronavirus.
Nevertheless, Mastercard is undergoing a transitional phase from stabilization to normalization in some markets, driven by the gradual reopening of businesses.
The stabilization phase is characterized by lower level of spending on account of compliance with social distancing and mobility limitations.
The next phase is normalization wherein governments gradually relax restraints and the environment becomes safer for the public at large, enabled by widely available testing and contact tracing kits as well as improved therapeutics even before the rollout of an effective vaccine. This phase is likely to be characterized by a steady recovery in spending to the pre-COVID levels. The company anticipates spending to rebound to normalcy during this phase, but not necessarily evenly.
The company expects specific sectors, such as home improvement, clothing, healthcare, domestic and intra-regional travel among others to normalize earlier as these witness the ballooning of pent-up demand. Other areas like mass entertainment and long-distance travel will probably take longer to bounce back on track. It’s possible to see early signs of normalization in some sectors and geographies throughout the rest of this year.
Therefore, the company’s switched volume and switched transactions are showing a better trend over the past two weeks, partly backed by the easing of social-distancing measures in several markets and the positive impact drawn from the fiscal stimulus in the United States. We note that switched transactions, which were down 24% in the week ending Apr 7 improved to a decline of 12% in the week ending May 7.
Mastercard’s cross-border volume is persistently squeezed because of lower travel frequency. However, the metric made a modest progress over the last week, partly owing to an increase in intra-Europe travel. Thus, cross border volumes, which plunged 48% in the week ending Apr recovered a bit over a month with 43% drop in the week ending May 7.
Mastercard is also witnessing buoyant demand for its Data & Analytics and Cyber solutions. In the second quarter of 2020, the company expects services growth that provides diversification to its revenue stream to continue outperforming its core products.
Mastercard managed to deliver a decent performance in the first quarter, registering an earnings beat of 6.4% despite the COVID-19-led business disruption that drained its cross- border revenues.
Moreover, the company’s strategy to invest in organic and inorganic growth opportunities bodes well. Its strong brand name, vast ecosystem, global footprint, investment in technology, solid alliances and acquisitions should help it to easily navigate the current economic doldrums.
Year to date, the stock has lost 9.2% compared with its industry’’s decline of 10.2%.
Other stocks from the same space with depreciated value include Visa Inc. V, American Express Co. AXP and Discover Financial Services DFS, each having decreased 5.5%, 33.9% and 54.3%, respectively, in the same time frame.