2020 was a challenging year for Mastercard (MA 0.39%). The steep decline in travel due to COVID-19 adversely affected the digital payment network's results. Full-year revenue and adjusted earnings per share fell by 9% and 17%, respectively. And given that it remains a high-priced stock -- shares traded for 54 times trailing-12-month earnings at Wednesday's close -- Mastercard could be viewed as a risky investment at this juncture.

Despite the pandemic, though, Mastercard has many positives working in its favor. For long-term investors, this company is far less risky than it may appear at first glance.

Someone pictured offscreen holding a card and inputting the info into a laptop.

Image source: Getty Images.

An (eventual) bet on rebounding travel

Mastercard is a play on an eventual rebound in travel. While the volume of money moved using its digital network is back to year-over-year growth (due in part to the boom in e-commerce -- more on that below), the slump in cross-border money movement remains the largest headwind to Mastercard's revenue results. 


Cross-Border Volume Change (YoY)

Total Gross Dollar Volume Change (YoY)

Revenue Change (YoY)

Q1 2020




Q2 2020




Q3 2020




Q4 2020




YoY = year over year. Data source: Mastercard.

Clearly, Mastercard is clawing its way back to revenue expansion, but the lack of global travel is impeding progress. New lockdowns and travel restrictions initiated by many countries put a damper on a rally during the final months of 2020. However, the digital payments industry remains a top way to invest in a gradual return of travel. According to Mastercard's new CEO, Michael Miebach:

We continue to believe travel will improve, starting with personal travel as border restrictions ease and as vaccination efforts expand. We believe corporate travel will follow. As we said in the past, progress may not be linear, but we believe there is significant pent-up demand for travel. And we continue to expect to see improvements in the second half of the year.

As of this writing, shares are trading for the same price as they were just before the pandemic. Suffice to say, a rebound in travel has been factored into the valuation for the next year or so (thus the high price to earnings multiple of 54). However, as travel does come back, it will compound on top of the progress the company has made on other fronts like online retail.

Betting on a more digital, real-time financial system

While shareholders wait on a gradual easing of the pandemic's economic effects, Mastercard is very much a growing business in other areas. The ongoing expansion of e-commerce in particular is a massive tailwind that will continue long after COVID-19 has ceased to be a top concern. Card-not-present transactions (think online purchases) grew by double-digit percentages in 2020. Mastercard is constantly signing up new merchants and partnering with payments providers to make transactions easier and more secure in the new era of digital commerce. Specifically mentioned in the last quarterly earnings call were partnerships with the new Citi Plex digital banking account built into Alphabet's Google Pay, a new credit/debit offering, a payments analytics deal with Walgreens Boots Alliance, and agreements to supply card-on-file payment credential services with Netflix and Etsy.

Partnerships like this illustrate the nature of Mastercard's path forward. The world is still highly reliant on cash and legacy digital systems, and Mastercard has plenty of opportunities to sign up new partners to its ecosystem. Next-gen payment systems utilizing blockchain technology are also an emerging trend that could benefit the company in the long term. But beyond facilitating the actual movement of digital money, its financial technology services are notable. Data security, analytics, and payment information storage and management go hand in hand with e-commerce, and gains in those businesses often accompany growth in transaction volume.  

Mastercard has plenty of liquidity to utilize as it seeks out new areas for expansion. At the end of 2020, cash and investments on the books totaled $10.6 billion, while total debt was $12.0 billion. Additionally, adjusted free cash flow was $5.53 billion in 2020 (including the cost of acquisitions), good for a free cash flow profit margin of 36% (or 43% if excluding the cost of acquisitions). That gives the company ample cash to invest in growth or use to buy back stock. (The current share repurchase authorization has $9.5 billion remaining on it, equal to 3% of the company's current market cap.) Put simply, Mastercard is on a rock-solid foundation as it begins to lap the initial effects of COVID-19.  

In the new digital era that is emerging, Mastercard looks poised to return to growth. Sure, its shares trade for a premium, and an eventual rebound in travel spending is priced into the stock's valuation for the year ahead. However, continued growth in various areas of e-commerce mean this digital payments leader is likely to remain a growth story for the foreseeable future. It has its pricey valuation for a reason. For investors who are ready to buy and hold for at least a few years (the longer, the better), this isn't all that risky a stock after all.