MasterCard Proves Masterful Yet Again

MasterCard MA reported second quarter earnings that blew out Wall Street expectations and shares are jumping this morning on the back of the better than expected report. After the earnings beat, shares are up more than 7% this morning on the strong quarter, and it appears the conference call is going well, with MasterCard having positive comments about the direction of the business. The Purchase, N.Y.-based company reported earnings of $4.76 per share on $1.67 billion in revenues. Wall Street had been expecting earnings of $4.22 per share on $1.55 billion in revenues. “Solid global performance, including strong increases in volume and processed transactions, fueled double-digit revenue growth this quarter,” said Ajay Banga, MasterCard president and chief executive officer. “While payment volumes have risen across our base customers, we're also seeing new business such as the portfolio conversions of SunTrust and Sovereign, as well as new processing relationships in the Netherlands and in Brazil, contribute to growth.” Banga said, “During the quarter, work continued in the mobile commerce category highlighted by an agreement with Google and multiple partners to launch the Google Wallet, as well as our alliance with Isis, in the U.S. Additionally, the previously announced Orange and Barclaycard contactless mobile payment service became available to U.K. consumers in May. Other notable agreements we executed include a commercial alliance with China Union Pay to enable its cards for cross-border e-Commerce, and a new, multi-product agreement with Swedbank in the Nordics and Baltics region.” On the conference call, MasterCard said that SpendingPulse data is up 6% year over year over the last month, including July, but much of it is probably due to inflation. Between Mastercard and Visa V, these two companies cover the majority of credit card purchases in this country, as well as abroad with their networks reaching across the globe. These two companies have had their fair share of regulatory concerns in recent memory, with the Durbin rule affecting the companies. However, on the call, MasterCard said that the non-exclusivity Durbin Rule is a "net opportunity" for the company. Both credit and debit card use rose around the world, with debit growth over 28%. The company added two customers, SunTrust Bank and Sovereign Bank. This added 3 million new credit card account holders and 11 million new debit card customers. "It's a very, very strong performance," said Stifel Nicolaus analyst Chris Brendler. "International is clearly growing much faster than expected." In addition to the strong international growth, the company continues to believe in its own shares, buying back 1.5 million shares during the quarter at a cost of about $387 million. MasterCard has continued to prove since its IPO in 2006 that it is the dominant leader in this space, with more growth than Visa and a stronger than expected international arm. From a technical standpoint, MasterCard has broken the $318.75 level on volume, and traders should watchi this level to see if it will hold. If it does, this could the indication of another leg up for MasterCard. ACTION ITEMS:

Bullish:
Traders who believe that the U.S. consumer is spending more and more through credit card use might want to consider the following trades:

• Add to MasterCard on any dips. It's clear that MasterCard has continued to prove the doubters wrong and will continue to do so.

• Also look at Visa V, although the stock is broken technically at these levels. It could see sympathy from MasterCard's earnings.

Bearish:
This continues to be bearish for checks, cash, and other forms of currency. As the years continue on, older forms of payment continue to be phased out. England is going to get rid of checks altogether in the next few years and it looks as if the U.S. is going to do the same as well.

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