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Why Mastercard Stock Soared 24% in 2018

What happened

Shares of Mastercard (NYSE: MA) climbed 24.6% last year, according to data provided by S&P Global Market Intelligence. The company followed up a solid 2017 with an even better 2018, as revenue growth accelerated on the back of strong consumer spending trends around the world.

MA data by YCharts.

So what

Through the first three quarters of 2018, non-GAAP revenue grew 20% year over year on a constant-currency basis. A higher operating margin and lower tax rate provided a boost to adjusted earnings per share, which surged 42% over the same period in 2017 on a constant-currency basis.


The results show that Mastercard continues to benefit from the secular shifts from cash to electronic forms of payment. Payments made via cash, check, and legacy Automated Clearing House (ACH) make up 90% of global transactions. During the third-quarter conference call, CEO Ajay Banga said, "Our long-term sights...are set on investing to get at that cash and to get at those inefficient ways of doing business-to-business payments."

Additionally, management is investing more in services to drive a deeper relationship with merchants, banks, governments, and acquiring systems, which should help protect Mastercard's competitive advantage as an indispensable partner in the payments industry.

Now what

Mastercard has consistently grown revenue and earnings over the last decade, which speaks to the company's long-term growth runway. Banga cautioned investors that there could be some near-term disruptions given the trade wars and everything going on in the macroeconomic environment currently. However, management continues to see overall healthy trends in the business.

On Dec. 26, Mastercard said that U.S. retail sales grew 5.1% to $850 billion between Thanksgiving and Christmas. That's the strongest growth in the last six years, so expect Mastercard to report another round of strong results for the fourth quarter.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool has a disclosure policy.

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