Mastercard (MA 0.39%) is one of the leading payments platforms in the world. It has a duopoly position (outside of China) in the industry with Visa, which is bigger company. Being a smaller business hasn't gotten in the way of Mastercard's ability to reward its shareholders.
The company had its initial public offering in May 2006. Since then, it has generated a magnificent total return of 13,690% (as of Oct. 3). Investors that were able to buy $7,300 worth of shares back then would be staring at a $1 million balance in their portfolios today.
This financial stock is trading at all-time highs. And the business is massive, sporting a market capitalization of $525 billion. If you buy $10,000 worth of Mastercard shares in October, will you become a millionaire one day?
Image source: Mastercard.
Mastercard's durable growth and huge profits
Mastercard has enjoyed durable growth. It benefits from a powerful secular trend, which is the rise of digital payments. According to a Worldpay report, electronic payments volume will go from $18.7 trillion in 2024 to $33.5 trillion in 2030. There is still a meaningful runway to grow going forward. What's more, Mastercard can gain ground in emerging markets. This should offset slower growth in developed countries, particularly the U.S.
At a high level, Mastercard is essentially a tax on ongoing economic and spending growth. This makes it somewhat immune to inflationary pressures, as it takes a cut from payments volume running over its network.
Because its financial results are tied to the performance of the overall economy, Mastercard is exposed to cyclical forces beyond its control. For instance, a recessionary period would hurt spending activity, pressuring the company's revenue and earnings. Given that the economy expands over the long term, this risk would only be temporary in nature.
There is minimal financial risk with this business. That's because Mastercard is one of most profitable companies around. In the past decade, its net profit margin has averaged a splendid 42.2%. A significant earnings stream allows management to invest in new areas, like value-added services, while also returning capital to shareholders.
Operating from a position of strength
A discussion about Mastercard can't overlook the company's exceptional network effect. There are 150 million acceptance locations and 3.2 billion cards that lay the foundation for this payments platform. Merchants have no choice but to use the network unless they want to lose access to a global customer base. And cardholders find tremendous value because the cards are accepted virtually everywhere.
The network effect supports Mastercard's dominant competitive position. But this year was a seminal moment for stablecoins. If widely adopted, these would allow merchants and consumers to transact in faster and cheaper ways, dealing a blow to Mastercard. It seems that the payments landscape has and will continue to undergo notable shifts.
However, Mastercard can be viewed as a foundational layer to how money moves around and how commerce is conducted. This allows it to operate from a position of strength, as any new innovations will likely need to be compatible with the Mastercard network if they want to find broad adoption.
It makes sense, then, that Mastercard has the upper hand as it's partnering with companies in the crypto and stablecoin markets to brainstorm solutions that provide real utility. Investors should gain peace of mind from this favorable setup.
NYSE: MA
Key Data Points
Elite business, but what about the stock?
It's a smart idea for investors, at least those who care about owning the best businesses out there, to keep close tabs on Mastercard. This is a world-class company. I have zero doubts that Mastercard will continue to perform very well from a fundamental perspective.
Will that translate into millionaire-maker returns? I don't think so. This is already a massive company, and it's likely that earnings growth will slowly decelerate in the future. The stock's expensive valuation also doesn't add upside to the equation. A 100-fold gain that turns $10,000 into $1 million just isn't in the cards.
