Is MasterCard Inc.'s Growth Story Still Intact?

Source: Flickr user Hakan Dahlstrom.

Some of the most successful companies in the market are those that put themselves in an essential position to facilitate transactions between other unrelated parties. MasterCard (MA 0.07%) has turned that business model into an art form, setting up its global payment-processing network to take its cut on trillions of dollars in transactions annually. Yet even though the U.S. is five years into its economic recovery, less healthy economic conditions elsewhere across the globe have had MasterCard shareholders nervous about its ability to keep extending its worldwide reach for further growth. With the company reporting its third-quarter results Wednesday afternoon, MasterCard needs to convince investors that it's still on track to grow.

For years, MasterCard has labored in the shadow of archrival Visa (V 0.49%), with each staking their claim on the fast-growing global payment-processing industry. As technological innovation has ramped up, though, some nontraditional players have entered the mix of those seeking to profit from helping people move money, and MasterCard has therefore had to defend its turf on multiple fronts. Let's take an early look at what's been happening with MasterCard over the past quarter and what we're likely to see in its report.

Stats on MasterCard

Source: Yahoo! Finance.

Can MasterCard turn its stock around?
Investors haven't felt entirely confident about the prospects for MasterCard earnings growth in recent months, as they've reduced their expectations by $0.02 per share for the third quarter and made similarly minor downward adjustments to their full-year 2014 and 2015 projections. The stock has reflected their uncertainty, with share prices having fallen by 2% since late July.

Source: MasterCard.

For its part, MasterCard has remained upbeat about its growth trajectory, and its most recent earnings results have reflected its optimism. In the second quarter, MasterCard's earnings per share jumped 14% on a 13% rise in revenue, and a 12% gain in transaction unit volume to 10.6 billion transactions showed just how willing consumers have been to spend using their plastic. Looking forward, MasterCard still believes it's on track to deliver double-digit percentage growth in sales annually through next year, as well as 20% or more growth in earnings per share.

Yet more pessimistic investors can point to a number of ongoing concerns for MasterCard. Ongoing political tension between Russia and the rest of the world over the annexation of Crimea and potential further aggression against Ukraine have led to fears of rising economic sanctions against Russia, and MasterCard and Visa both have faced recriminations as the Russian government has threatened to put major restrictions on their ability to conduct business within the emerging-market nation. Although Russia makes up a relatively small portion of MasterCard's overall revenue, the precedent could ultimately endanger the card company's business elsewhere.

In addition, the ongoing evolution of technology in payment processing forces MasterCard to keep up in order to maintain its leadership position. For instance, MasterCard's deal with Apple (AAPL -0.81%) on its Apple Pay program preserves its role in being an intermediary for payment processing. But with the potential for mobile-platform providers to take some of the revenue that would otherwise go to the card network companies, MasterCard has to make sure that it doesn't lose pricing power and instead keeps building the value of its global network.

Source: MasterCard.

Nevertheless, it's important for investors to remember that there's plenty of growth potential in other parts of the emerging world. Even though using plastic has become commonplace in the U.S. and other developed economies, many parts of the world still have largely cash-based transaction practices. If MasterCard can get into those untapped markets even to a minor extent, it could have a dramatic impact on its future growth.

In the MasterCard earnings report, look closely to see not only whether the card giant manages to produce similar growth to its past results but also where that growth comes from. Understanding the mix within MasterCard's business should shed light on exactly which path is most likely to lead to eventual success for the company in the long run.