Mastercard Inc - Class A

Montaka has substantially increased its investments in Mastercard, viewing it as a major mispricing opportunity. The manager believes that Mastercard, along with Visa, is an extraordinarily advantaged business that has consistently grown annual revenues at double-digit percentage rates. They expect this strong growth to continue, driven by new value-added services attached to their payment networks, which are growing at even faster rates. Despite this, the current stock prices are pricing in future revenue growth of only around 4% per annum, well below Montaka's expectations. The manager is optimistic about the potential for strong growth and believes that the market's focus on semiconductor stocks has led to unusually low valuations for Mastercard.

Mastercard is mentioned in the context of the evolving payments landscape, highlighting the enduring appeal of card payments due to their universality and consumer trust. The letter discusses the gradual shift away from traditional payment methods and the impact of fintech innovations. However, it also notes potential challenges, such as merchants dictating payment methods and the implications of recent settlements affecting card acceptance. Overall, the discussion reflects on the complexities and future of the payments ecosystem without a clear bullish or bearish stance on Mastercard itself.

Mastercard has been pioneering and productizing AI since the 1990s when it was called 'machine learning'; just starting to monetize their tokenization technology that secures over 50% of ecommerce transactions and will prove crucial for AI-powered 'agentic' commerce in the future. The company’s adjusted net margin was 47% in 2025, showcasing its strong profitability compared to competitors like Anthropic, which has not made a net profit despite having comparable revenue. This positions Mastercard favorably as it continues to leverage its competitive advantages in the evolving AI landscape.

Wall Street analysts expect Mastercard to compound EPS by 15% over the next few years, roughly the same rate as the past 20 years. The stock was down 10% in the first half of 2026 and has lagged the Index over the past five years. Despite this, we believe Mastercard is a high-quality earnings compounder that will benefit from implementing AI capabilities and is likely to maintain its dominant competitive position. We are out of sync with the Index but are not inclined to change course, as we think our companies are performing better than their stock prices would indicate.

Mastercard has demonstrated strong growth, compounding revenue at 13% annually over the past decade, which outperformed our conservative long-term growth forecast of 7%. This discrepancy highlights our previous underestimation of its potential. We believe that our cautious approach to forecasting has led to a valuation that does not fully reflect Mastercard's quality and growth prospects. As we adjust our models to be more accurate, we see a solid opportunity for better returns from this high-quality business, which we are now adding to in our portfolio.

Our financial services investments focus on non-bank leaders and innovation-led platforms that are integral to global payments systems. Key holdings include international payment leaders such as Mastercard, which continue to benefit from the secular shift towards digital payments and cashless transactions. This trend supports sustained growth in global financial activity, making Mastercard a compelling investment in our portfolio.

Mastercard is highlighted as a prime example of a 'Compounder' due to its strong historical returns and its position in a duopoly with Visa in the credit card market. The company has maintained high returns on investment and possesses an 'Economic Moat' that limits competition. This makes Mastercard a compelling long-term investment as it continues to reinvest profits effectively, maximizing shareholder returns over time.

We initiated a new position in Mastercard, a leading global payments company, with a highly scalable, asset-light business model, strong brand equity, and exposure to long-term secular growth in electronic payments globally. The company benefits from meaningful pricing power, supported by its position within a rational, quasi-oligopolistic market structure and ongoing product innovation, which has historically enabled low-single-digit price increases annually. Mastercard’s revenues are highly repeatable, driven by the processing of over 200 billion transactions each year across more than three billion cards in circulation. Importantly, approximately a quarter of revenue is tied to transaction counts rather than dollar volumes, providing resilience during periods of lower consumer spend per transaction. Together, these drivers support the potential for sustained double-digit revenue growth over time.

Mastercard is a strong investment due to its dominant market position and ability to innovate in response to emerging technologies. Despite regulatory uncertainties like the Credit Card Competition Act, the manager believes that Mastercard's structural advantages and efficiency in the payment ecosystem will allow it to maintain its market share. The company has successfully navigated past threats and is well-positioned to leverage new technologies, such as agentic commerce, through its existing protocols. The manager sees low likelihood of long-term headwinds and believes that Mastercard will continue to thrive.

We have made Mastercard one of our largest positions, believing we are buying quality businesses at financial crisis era discounts. Mastercard has delivered a nearly 23% gross compounded annual return during the 17 plus years we have owned it versus 14.1% for the S&P 500 over that same time period. Our experience with Mastercard demonstrates the importance of hard-nosed, objective, deep research instead of following the whims of 'Mr. Market.' The same math today suggests they are extremely discounted, with a price to value ratio approaching $0.50 on the dollar.