Mastercard: A Strong Business at a Too-High Price

The company has a strong business model, but its valuation is very rich, making it risky

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May 25, 2023
  • Mastercard will benefit from the digitalization of global payments.
  • The financial services company is a dominant player, giving it economies of scale.
  • However, Mastercard is a blue chip stock that is very pricey now with a lot of debt
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Mastercard Inc. (

MA, Financial) is a blue-chip stock that many investors like as the company due to its dominant position in the global payments network. Economies of scale and built-in inflation protection have done wonders for the comapny's long-term growth. The first quarter 2023 earnings report was another strong one, with key metrics showing growth in the payments network.

MA Data by GuruFocus

However, there are two major details that make be believe the stock is not attractive at this time: namely, the valuation is very rich and there is a lot of debt to consider.

First-quarter 2023 earnings review

In the first quarter of 2023, Mastercard reported adjusted earnings per share of $2.80, beating estimates by $0.09. GAAP EPS was $2.47, a miss of $0.24 compared to estimates, and revenue of $5.75 billion beat expectations by $109.24 million.

The company showed momentum and a solid business model as measured by four key metrics related to the payment network. Year-over-year domestic assessments increased by 7%, cross-border assessments increased by 33%, transaction processing assessments grew by 12% and other network assessments increased by 26%.

Key advantages of digital payments

Mastercard continues to benefit from the global transition from cash-based transactions to digital payments.

Digital payments provide a high level of convenience for both consumers and businesses. With just a few taps on a smartphone or clicks on a computer, payments can be made instantly, anytime and anywhere. There's no need to carry cash or visit physical stores or banks. Digital payment systems have improved financial inclusion by enabling individuals without access to traditional banking services to participate in the economy. Mobile wallets and digital payment platforms have made it easier for people to send and receive money, even in remote areas. Digital payments offer enhanced security compared to carrying cash. Encryption, authentication methods and tokenization protect sensitive financial information and minimize the risk of theft or fraud. Additionally, digital transactions leave a digital trail, which can help resolve any disputes.

Digital payments can be more cost-effective for both consumers and businesses. Cash handling, storage and transportation costs are eliminated, and there is no need for fully digital businesses to invest in cash registers or secure cash management systems. Some digital payment methods also offer lower transaction fees compared to traditional payment methods, even if it may not seem like it at first glance. Digital payments are significantly faster than traditional payment methods. Transactions can be completed within seconds, allowing for quicker and more efficient checkout processes, thus increasing the likelihood of a sale.

Digital payments also generate electronic records, providing easy access to transaction history for consumers and businesses. This facilitates budgeting, expense tracking and financial planning. For businesses, analyzing payment data can provide insights into customer behavior and preferences, enabling them to make more informed decisions. In the context of the Covid-19 pandemic, digital payments gained popularity due to their contactless nature. Contactless payment methods, such as mobile wallets or NFC-enabled cards, minimize physical contact between individuals, reducing the potential spread of germs.

Furthermore, digital payment systems can integrate with other financial services, such as budgeting tools, loyalty programs and financial management apps. This integration simplifies financial management for individuals and offers additional benefits and rewards for users.

Mastercard is one of the top players in global digital payments

As one of the first-movers, Mastercard has been able to build very strong brand recognition that is incredibly difficult for newer players to emulate. Mastercard has established a vast network of merchants and financial institutions worldwide. Its cards are widely accepted in numerous countries, making it convenient for consumers to use Mastercard for transactions both domestically and internationally. The company has formed strategic partnerships with a wide range of financial institutions, including banks, credit unions and payment processors. These partnerships facilitate the issuance of Mastercard-branded cards, further expanding the reach and acceptance of Mastercard in the market.

Mastercard has consistently invested in technological advancements to enhance its payment infrastructure. It has developed robust payment processing systems, security measures and innovative payment solutions. By staying at the forefront of technological innovation, Mastercard has maintained its competitiveness and relevance in the payments industry.

Mastercard prioritizes security in its payment network. It has implemented various security features, such as tokenization, encryption and fraud detection systems, to protect cardholder data and prevent unauthorized transactions. This emphasis on security has helped build trust among consumers and businesses, further solidifying Mastercard's position in the market.

Consumer benefits are vital to marketing success, as Mastercard offers various benefits to both merchants and consumers. Merchants benefit from streamlined payment processing, reliable transaction settlement and access to Mastercard's extensive customer base. Consumers enjoy features such as reward programs, cashback offers and secure payment experiences, incentivizing the use of Mastercard for transactions.

Mastercard consistently seeks to innovate and diversify its offerings. It has expanded beyond traditional credit and debit cards to include prepaid cards, mobile payments and contactless payments. By embracing emerging payment technologies and exploring new market segments, Mastercard stays ahead of the curve and sustains its dominant position.

Now for the bad news

Mastercard may have been one of the premier stocks to own historically, but that may have changed in my opinion due to high debt and an overly rich valuation.

For the three months ending March 31, the debt-to-equity ratio was 2.84. The company has been growing its long-term debt since 2014, and as a result, the debt has weighed more and more on the company.


Next, the valuation is too high on a relative basis. The forward enterprise-value-to-Ebitda ratio for Mastercard is 24.52 versus the sector median of 10.96, while its forward price-sales ratio is 13.87 versus a sector median of 2.08. Forward estimates are based on my own personal projections.

Undoubtedly, Mastercard has bright business prospects, but I just can't see the shares as attractive at this time.


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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