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January 31, 2008
MasterCard Earnings Soar - How You Can Profit
The major credit card companies are raking in the cash hand over fist these days primarily due to the rise in the cost of living.
In fact MasterCard reported that their fourth quarter profits in 2007 were up 7x predominately because consumers are paying more to fuel their cards and pay the grocery bill.
MasterCard reported an earnings rise of over $300 million, the rise in earnings can be translated to earnings of $0.89 per share which exceeded shareholder expectations by roughly 0.16 per share.
The huge rise in earnings is attributed to, as mentioned previously, that consumers are spending more on everyday purchases such as gas and food, but it goes further than the rise in the cost of living.
Consumer’s credit card use has increased as well as more and more Americans are switching from using cash to greater use of credit and debit cards.
While MasterCard shares are on the rise their top competing card processing networks such as American Express and Discover Card are on the decline.
Why the difference?
MasterCard does not extend credit to cardholder’s. That is the job of the banks that issue MasterCard credit cards. MasterCard only operates a payment processing network.
MasterCard thus is immune from default credit card accounts and earns revenue based solely on its cut of every MasterCard transaction that occurs. Where as their competitors such as American Express and Discover Financial Services do extend credit to cardholders thus leaving them vulnerable to default cardholder accounts.
Since MasterCard takes a percentage of every transaction that occurs and the cost of living is on the rise what MasterCard has is a fool proof business model that actually earns more as prices go up.
If you are looking for an investment that will likely continue to grow over time then you should consider MasterCard as part of your portfolio. As you spend more on your MasterCard everyday you can rejoice in knowing that the more you are forced to spend the more your investment portfolio will be on the rise.
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