Shareholders have no right to complain about how well MasterCard (NYSE:MA) has done in its brief history as a publicly traded stock, as the card-network giant has surpassed American Express (NYSE:AXP) in stature within the industry and also dramatically outperformed AmEx in share-price appreciation. From such a strong past, the hurdle for MasterCard to overcome to have its best year ever is high, but there are a few reasons why 2016 could bring even stronger results for the company. Let's take a closer look at whether 2016 could be MasterCard's best year yet.
Will the dollar finally stop sabotaging MasterCard's financials?
Probably the most annoying thing that MasterCard has had to deal with in recent years is the strength of the U.S. dollar. MasterCard has a huge emphasis on its international business, and growth in local-currency terms has been impressive around the world. That's particularly surprising given some of the economic pressures that countries across the globe are enduring right now, but the global payments industry still has a lot of room for growth even in macroeconomic conditions that are less than ideal.
The problem is that the strong dollar washes away those local-currency gains when MasterCard translates them back into dollar terms. For the full 2015 year, MasterCard took a seven-percentage-point hit to earnings because of currency adjustments related to the strong dollar. Revenue growth would have been six percentage points higher from a currency-neutral perspective.
Some recent signs suggest that although the dollar isn't weakening, the pace of its advance has slowed. That could help MasterCard post even better results in 2016.
Why MasterCard's executives are optimistic
For their part, CEO Ajay Banga and his team are quite enthusiastic about MasterCard's 2016 prospects. In its recent conference call, Banga talked about numerous companies that are slated to launch the MasterPass system this year, including large retailers, airlines, and other niche providers. He also pointed to safety and security efforts that will continue to fight fraud and reduce expenses, and MasterCard is also working hard to get on the ground in China, where the chance to break into a once-closed market looms large on the company's list of growth opportunities.
More broadly, MasterCard thinks that 2016 will bring continued strength in the U.S. and European economies, but the rest of the world could still struggle. That will put a lid on 2016's growth, and MasterCard expects the year's results to come in at the low end of its longer-term performance benchmarks. Still, even slight growth could be enough to push MasterCard stock higher if it comes with expectations for acceleration in 2017 and beyond.
What competition could bring
To have its best year ever, MasterCard has to remain aware of the competitive framework in the industry and take steps to stay ahead of its rivals. In particular, the competition for lucrative co-branded cards has gotten fierce in recent years, and American Express' experience with the loss of its deal with warehouse retail giant Costco Wholesale is just the highest-profile example of some of the wrangling that has gone on among MasterCard and its peers in the business.
MasterCard's biggest competitive advantage is in the pace of its expansion overseas, and so the company needs international markets to cooperate to create new opportunities for further gains. At the same time, both American Express and Visa are looking outside the U.S. for growth of their own, and China in particular is such an important market that MasterCard will have to fight to earn its place in the wallets of Chinese consumers.
MasterCard has done a great job in past years, and so it will be hard for 2016 to surpass its past success. If things work out just right, however, then MasterCard could put itself in position for another phase of solid growth. For growth-oriented investors, that could be the key to make 2016 MasterCard's best year ever.