MasterCard’s Cairns: “We’re a tech stock … which outperforms Google”

Duncan Kerr
Published on:

In a wide-ranging interview, Ann Cairns, MasterCard’s president of international markets and resident statistics buff, talks to Euromoney about tech-sector valuations, the digital revolution, acquisitions, regulation, and a yacht called…

In March, the Financial Times published an article that talked about the stock valuations of MasterCard and Visa being in "nosebleed territory" and asked whether their share prices could be justified, or whether the online payments industry that they dominate was moving into a "bubble".

Given that stock price of MasterCard alone has rocketed by more than 400% since it was listed on the New York Stock Exchange in 2006, it’s little surprising that questions around its stock valuation are being asked at all.

It’s even less surprising when using a price-to-book multiple to value MasterCard’s stock because on this measure, which is typically used on financials, the company trades at more than 12 times book, the FT article said.

Visa, by comparison, trades at about six times book.

When large global banks such as JPMorgan trade at close to book value, MasterCard’s valuation using this measure is striking in comparison.

 Ann Cairns
Ann Cairns, MasterCard’s
president of international
For Ann Cairns, however, it was the wrong measure applied to the wrong type of company.

"[The article] was quite surprising to me because tech companies are not valued on book value – that is how you would value a bank," she tells Euromoney in an interview ahead of the New York State-based company reporting first-quarter results on May 1.

"[After all,] we’re a tech stock, which actually outperforms Google," says Cairns. "We do not take financial risk at all. We just effectively use our technology to move money from one place, quickly and securely in over 210 countries around the world."

MasterCard doesn’t just outperform Google, it outperforms Apple and Microsoft too. In fact, there are few tech stocks MasterCard, or Visa, haven’t outperformed since 2006. Amazon is arguably one of the few.

Cairns knows a thing or two herself about technology and financial risk after a 20-year career in banking, involving 15-years at Citi, where she was most recently chief operating officer for its global e-business.

She was also chief executive of ABN Amro’s transaction banking business, and led Alvarez & Marsal’s European team in managing the complex estate of Lehman Brothers Holdings International through Chapter 11.

A pure mathematician and statistician by training, Cairns started her career as an offshore research engineer for British Gas off the west coast of England, becoming the first woman qualified to go offshore in the UK.

Given this, Cairns no doubt experienced rising swells before, but on whether or not there is a bubble bubbling in the tech sector, she would not be drawn. Instead, she draws a distinction between those technology companies that provide a pure online or digital platform and those, such as MasterCard, which offer a powerful blend of the "physical and digital" with a business model that is more easily understood by the market.

"We make money through transactions," she says. "We are connected to 27,000 banks, 35 million merchants, and there are 1.9 billion cards out there with around 1.3 billion consumers, so there is a tremendous transaction flow."

MasterCard’s first-quarter results highlight that flow is growing. The company reported a 14% rise in net income to $870 million compared with a year earlier, supported by a 14% increase in net revenues to $2.2 billion and driven principally by a rise in spending by consumers worldwide.

However, the geopolitical crisis and US sanctions over Russia are problems that could potentially impact MasterCard’s future earnings. The Russian government is pressing ahead with creating its own domestic payments network, something that MasterCard’s president and CEO Ajay Banga is concerned about.

During a recent analyst call he said: "There are provisions there that I believe would create serious complications for the way that we can operate in that market."

Given Russia accounts for roughly 2% of MasterCard’s revenue, any impact, while a concern, is still unlikely to throw its growth off course.

Indeed, beyond enabling consumer spending, Cairns says MasterCard’s business model is supported by one of the most profound global cyclical trends – the move from cash and paper to electronic and digital. It’s a trend that is accelerating.

"Given that 85% of the world’s transactions are still cash and paper – it’s even over 90% in some of the countries under my remit – this cyclical trend is big and with advent of greater internet access and usage worldwide it is bound to accelerate further," she says.

Such potential explains why so many firms, from telecoms companies to Google and PayPal, among others, are determined to transform the way people pay for things. Indeed, some of these upstarts foresee a post-plastic world that could put a large dent in MasterCard and Visa’s earnings. However, these companies and their peers are fighting back.