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Can Mastercard (MA) Regain Its Lost Sheen From Travel Rebound?

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Mastercard Inc.’s (MA - Free Report) business volume is set to grow with a rebound in cross-border travel, which is the slowest sector to restore normalcy. However, there are some green shoots that indicate people’s intention to see the world around.

Cross-border is the highest margin business category for Mastercard. This business line has suffered since the pandemic struck, thus weighing on the company’s earnings.

However, as lockdown is being lifted in several parts of the globe and vaccination jabs are administered successfully, the traveling trend is fast catching up.

Personal Travel to Resume Soon

Within travel, personal travel will pick up the pace faster than corporate tours on significant pent-up demand. Also, virtually-conducted corporate meetings dampened the need for corporate travel to some extent.

However, per a recent American Express report, corporate travel will increase its frequency soon. It stated that while some meetings are easily done online, others are much more valuable when they take place on one-on-one basis. Also, the U.S. workforce is yearning for in-person business connections after an extended period of remote working and monotony. 88% of business travelers believes that business travel can contribute to stronger leadership skills.

It seems that business travel is just round the corner. 83% decision makers are optimistic that business travel will return to pre-coronavirus levels over the next two years. While the business travel is yet to show signs of recovery, personal travel is already gaining an impressive momentum.

In the first quarter of 2021, Mastercard witnessed strength in personal domestic travel in both the United States and the U.K. The U.S. airline spend is too catching up fast.

Despite this uptick, the overall travel business is down from its pre-pandemic levels.

Cross-border travel spending continues to be in the stabilization phase wherein spending is restricted due to closed borders. This phase is the second stage of the four-phase (containment, stabilization, normalization and growth) framework it established for navigating the COVID environment.

Meanwhile, the company is firmly focused on building on its already strong position in travel, engaging travelers early through its loyalty programs and expanding relationships with its partners in travel.

Companies like Visa Inc. (V - Free Report) , American Express Co. (AXP - Free Report) and Discover Financial Services (DFS - Free Report) are all likely to see sunny days ahead with people travelling and spending more on their cards.

Other Tailwinds

Cross-border travel is the only blot on the company while the rest of its growth pillars, such as digital, cybersecurity, data analytics, B2B and multi-rail solutions, look solid.

Mastercard’s main operating metrics, namely gross dollar volume (the amount of purchases made and cash disbursements obtained with MasterCard-branded card) and switched transactions, which measure the number of times the company’s products were used to facilitate transactions, are improving.

Per management, many of the company’s markets are transitioning from normalization phase to the growth phase domestically, which is a positive.

The ongoing expansion of e-commerce is also a massive tailwind for Mastercard that will continue long after COVID-19 ceases to bother.

Moreover, Mastercard is reinforcing its position in providing real-time payments and to this end, it acquired the Corporate Services division of Nets.

The company is bolstering its multi-rail capabilities, which are crucial to its efforts in open banking as well. It provides its banks and fintech customers with greater flexibility in managing both its payment and data flows.

Mastercard’s expansion in Open Banking, allowing  crypto currencies on its network, several new crypto partnerships and investments in blockchain technology will take it very far. The company is also engaging with governments across the world for their digital currency via its virtual testing platform.

Recently, the company announced that it will acquire Ekata, which advances its digital identity efforts. Notably, Ekata has access to validated identity information on a global basis and leverages AI to produce highly accurate identity scores.

The company aims to leave a broader impact on the society by executing its commitment to bring 1 billion people into the digital economy by 2025.

The icing on the cake for Mastercard is its solid capital position with abundant free cash flows. This enables dividend payment, share buybacks as well as acquisitions and strategic initiatives to aid growth.  

Mastercard is clearly a long-term option for investors who must retain it in their portfolio.

In six months’ time, the stock has gained 6.4% compared with its industry’s growth of 4.6%.


Zacks Investment ResearchImage Source: Zacks Investment Research

Mastercard carries a Zacks Rank #3 (Hold), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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