IPO Advantages and Disadvantages: Buy MasterCard IPO

IPO Advantages and Disadvantages:
Buy MasterCard IPO... A Sizzling Debut
A Special Report for Dynamic Market Alert
August 16 , 2006
by Todd M. Schoenberger
Editor, Red Zone Profits and American Capitalist


MasterCard (MA:NYSE) kicked off the summer season with a sizzling IPO that is certain to help keep Wall Street traders excited as they are sipping mojitos at their Hampton's beach houses.

The company raised more than $2 billion by issuing an enormous float of 61.5 million shares, which is the richest U.S. IPO since Genworth's offering in 2004. Wall Street greeted the debut with much fanfare as the stock gained 18% in its opening session.

If you pick only one stock to invest in this summer, you must take a close look at MasterCard, a recent recommendation to my Red Zone Profits members. The company is growing at an unprecedented double-digit rate and doesn't appear to be slowing down. MasterCard's global brand is envied by every U.S. company with international aspirations as the company’s flagship cards are accepted at over 24 million locations worldwide.

Looking at MasterCard's Numbers

How big is MasterCard?

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Well, gross dollar volume on cards carrying the MasterCard brand was $1.7 trillion in 2005, which is a 13% increase in U.S. dollar terms over the figure reported in 2004. For the first three months of 2006, gross dollar volume was $426 billion, a 12% increase in U.S. dollar terms compared to the same period in 2005. In 2005, the company processed 13.7 billion transactions (including 2.6 billion PIN-based online debit transactions), a 13% increase over the transactions processed in 2004.

To equate these dollar figures in revenue for the company, MasterCard keeps 14 cents for every $100 transaction. Total revenue for the company: $3.2 billion. MasterCard generates revenue primarily from these fees and its aggressive expansion and increased global commerce, particularly in cross-border business and leisure travel, and will continue to provide significant revenue increases in the years to come. Globalization is also encouraging the replacement of domestic payment solutions with payment solutions that have a worldwide reach.

MasterCard IPO: Expanding the Company... and the Profit Opportunities

MasterCard believes that there are significant opportunities to expand the company's role in targeted geographies and higher-growth programs. For example, while the company processes a large majority of the domestic MasterCard-brand card transactions in the United States, Canada, the United Kingdom and Australia, the proportion of domestic MasterCard-brand card transactions that are processed outside these markets is significantly lower.

Accordingly, the company believes that there are substantial opportunities for MasterCard to capture additional operations fees through transaction processing arrangements in selected markets. The company is also focused on expanding the role of MasterCard in higher-growth segments of the global payments industry, such as commercial, premium, debit and pre-paid cards.

MasterCard IPO: Committed to Its Image... and Its Growth

MasterCard is committed to maintaining and enhancing its image through advertising and marketing efforts on a global scale. The company's approach to marketing activities combines advertising, sponsorships, promotions, interactive media and public relations as part of an integrated package designed to increase MasterCard-brand awareness and usage of its cards. Among numerous other initiatives, the company intends to continue its award-winning "Priceless" advertising campaign, which has run in 106 countries and 50 languages.

The stock is an excellent buy at these prices. MasterCard is already owned by big institutional houses like J.P. Morgan and Citigroup; but look for other large-cap institutional managers to move into the stock over the summer.

The stock's PEG ratio is a very bullish 0.83 and its trailing P/E is a modest 15.

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Copyright 2006, The Taipan Group, LLC and Dynamic Market Alert, 808 St. Paul St., Baltimore, MD 21201
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