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Can Mastercard Join the $1 Trillion Market Cap Club?

By Matthew Frankel, CFP® – Jul 19, 2020 at 7:21AM

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This payment processing giant would need to triple to get to $1 trillion. Could it happen?

Mastercard (MA 1.86%) has certainly delivered strong returns for its investors. As the U.S. and the rest of the world has gradually become more cashless, it's been a huge catalyst for payment processing businesses like Mastercard. Over the past decade alone, Mastercard's share price has risen by more than 1,400% and the company now has a market cap of more than $300 billion. And it may surprise you to learn that there are now more than 2.6 billion Mastercard-branded credit and debit cards in existence.

However, the growth might still have a long way to go. Mastercard's market cap would need to more than triple to reach the exclusive $1 trillion club, but if it keeps growing its business and the cashless trends continue around the world, it could certainly get there.

Young woman accepting a card payment.

Image source: Getty Images.

Mastercard's growth has been impressive

Over the past decade, e-commerce has grown from just 4% of all retail sales to about 11.5%, according to the U.S. Census Bureau. And this trend is progressing even faster in several key international markets.

What's more, in-person cashless payments have accelerated in recent years. Companies like Square (SQ 7.23%) and other fintechs have made it far more convenient to pay with cards and other cashless methods, and meanwhile cash has become less convenient. The COVID-19 pandemic could provide an additional tailwind -- cash isn't exactly the cleanest method of payment.

All of this has combined to produce some pretty impressive growth:

Metric

2019 Year-Over-Year growth

2018 Year-Over-Year Growth

2017 Year-Over-Year Growth

Revenue

13%

20%

16%

EPS (adjusted)

20%

42%

21%

Data source: Mastercard. 2018 EPS growth included the effects of the Tax Cuts and Jobs Act.

The bulk of the growth could be yet to come

Despite the surge in e-commerce and cashless payments in recent years, there could be much more potential ahead for Mastercard.

This is especially true in international markets. While we generally think of credit cards as universally accepted forms of payment in the United States, that's simply not the case in many highly populated areas around the world. In fact, Mastercard's management has estimated that about 80% of payment transactions around the world still take place in cash.

By 2023, total card payment volume worldwide is expected to reach $45 trillion annually and considering the current annualized payment volume among the four major payment networks is about $17 trillion (Mastercard's share of this is about $6 trillion), it's fair to say that there's lots of room to grow. And that's not including non-payment types of money transfers, such as cross-border and person-to-person transfers, which are another big potential growth avenue.

Mastercard's main rival, Visa (V 1.09%) has estimated the total worldwide payments market to be a staggering $185 trillion in size. And while Visa is the market leader, Mastercard isn't too far behind, and both companies could conceivably multiply their payment volume several times over in the coming years.

Will Mastercard join the $1 trillion market cap club?

While I don't necessarily think Mastercard will get to $1 trillion in the next year or so, I think there's a strong chance of it happening in the next decade or so. In order for Mastercard to increase in value from $300 billion to $1 trillion in 10 years, it would need to generate 12.7% annualized growth, which actually sounds quite conservative given the company's recent history and the favorable trends.

Matthew Frankel, CFP owns shares of Square and has the following options: short August 2020 $105 calls on Square. The Motley Fool owns shares of and recommends Mastercard, Square, and Visa and recommends the following options: short September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Mastercard Incorporated Stock Quote
Mastercard Incorporated
MA
$291.81 (1.86%) $5.33
Visa Inc. Stock Quote
Visa Inc.
V
$179.81 (1.09%) $1.94
Block, Inc. Stock Quote
Block, Inc.
SQ
$59.06 (7.23%) $3.98

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