1. Mastercard Incorporated (NYSE:MA)
Akre Capital Management’s First Major Purchase: 2010
Akre Capital Management’s stake value: $1.94 Billion
Number of Hedge fund holders as of Q3: 131
Mastercard Incorporated (NYSE:MA) is a technology company that provides transactions, processing, and other payment-related products and services. It has about 3.4 billion credit cards in circulation and 150 million accepted by merchants worldwide. Consequently, it boasts of a solid revenue base that generates solid recurrent revenues on transaction fees.
As interest rates around the world come down, borrowing costs should drop, resulting in significant improvements in consumer purchasing power. As more people resort to shopping and making payments away from cash, the Mastercard stands to be one of the biggest beneficiaries.
Mastercard Incorporated (NYSE:MA) is already up 26.31% year-to-date and is trading near all-time highs. The stellar performance has to do with investors reacting to the company’s robust financial performance year to date. Its revenue has been up by about 17% over the past 12 months, and it has been benefiting from continuous innovation and expansion in the digital payment space.
Additionally, Mastercard Incorporated (NYSE:MA) has benefited from strong cross-border volumes, resilient consumer spending and diversification. Revenues from services and solutions contributed to 37.5% of total revenue in the first nine months of the year, which was up from 37% in 2023. Likewise, net revenues rose by 14% in the third quarter, and adjusted income grew by 13%.
Mastercard Incorporated (NYSE:MA)’s operating margin has already risen to 55%, demonstrating the company’s ability to maintain profitability. Its profit margins should receive a significant boost as card payment volume is poised to grow by 9% between 2025 and 2027, excluding China.
Conventum – Alluvium Global Fund stated the following regarding Mastercard Incorporated (NYSE:MA) in its Q3 2024 investor letter:
“We have discussed over the last couple of years our evolving investment process to become increasingly focussed on quality. In June 2022 we undertook the first step of that process – making changes to our quantitative screen. Specifically, we loosened the requirements with regard to traditionally measured “cheapness” (how the business is priced relative to its past earnings) and tightened the “quality” criteria (the returns the business has generated relative to capital employed in the past). Both Mastercard Incorporated (NYSE:MA) and Visa have remained in the screen since those changes were introduced. Our initial, somewhat rudimentary analysis, concluded that these businesses were just way too expensive for us. However, we revisited this more recently and we now concede that we failed to appreciate the value associated with such high quality businesses.
Visa (originally known as BankAmericard credit card program) was founded in 1958 by Bank of America (BofA). It was the first card to offer consumers revolving credit. Mastercard (originally known as Interbank, then Mastercharge), was founded in 1966 by a group of Californian banks to compete with it. Not long after, BofA gave up control of the BankAmericard credit card program, and became the second credit card program offered by a cooperative of banks. The way these businesses evolved ensures alignment of interests, with their success dependent on banks all cooperating and agreeing to underwrite transactions. Visa and Mastercard simply developed, implemented and maintained data matching systems to facilitate the network. Fast forward to today, and Visa and Mastercard are the two largest credit card payment processors, with widespread acceptance, robust infrastructure, and extremely strong brand recognition. They have become essential intermediaries in the global payment ecosystem, benefiting from their extensive merchant and bank partnerships as well as consumer trust. Together they dominate payments processing globally (outside of China)…” (Click here to read the full text)
While we acknowledge the potential of Mastercard Incorporated (NYSE:MA) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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