YouSaid · the spoken record

Sean Stannard-Stockton

lines on the record: 53
first: 2020-02-09
most recent: 2020-02-09
sittings or episodes: 1
sources: podcast

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“So ensemble capital management is in Burlingame, California. It's ensemble capital.com. We manage about $1 billion in assets for private clients and the ensemble fund, which is a mutual fund. And then intrinsicinvesting.com is our blog that we write regularly about our holdings and our thoughts on the economy and the market and stock picking in general.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Business, we don't really know it all yet. And that as you own a business, your brain starts reorienting towards things that connect to that, right? So for instance, there's a business called Stripe, a private company. It's amazing fast-growing business that allows websites to add just a little snippet of code and suddenly start accepting credit cards, right? Stripes the sort of business that it's a private company could be off your radar. If you were brand new to investing, researching Mastercar, you might not ever come across it. But when you own the business for a long time, you kind of live and breathe payments as part of your day job, then you learn about stuff like that and you start paying attention to those things.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Needs to kind of know inside out. And we tend to own these businesses for a long time, right? So, why do I know MasterCard well? Well, I've owned it for a long time, right? So it wasn't just like reading the 10K or research reports. It was living and breathing this business as we developed our firm and we owned it, listened to 40 earnings calls, right? I mean, like listen to the CFO retire and her relationship with the CEO and all of those sorts of things. and all those little kind of like scuttlebutt that you pick up along along the way so you know our view is that really knowing businesses is is kind of the key thing and not stocks you got to know stocks but really know the businesses right and these competitive dynamics and no you can't do that just through you know even an intensive say two month long research process so we go through a multi-month intensive research process to even initiate on a stock but initially we'll buy very little at that level because we know that that no matter how much we think we know this”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“We own, as I mentioned just a bit ago, kind of 20 to 25 businesses in our portfolio. And we think that to be an active manager, you really need to be focused in your portfolio, right? I mean, for basically no fee, you can buy every stock out there, right? The average mutual fund in the United States owns 150 securities. Well, that's a third of the S&P 500. And there's a reason why they don't tend to output as a group, right? I just know it's hard to pick stocks that outperform. I can't imagine what my 150th best idea would do. I would have no conviction in my ability to select 150 securities, all of which I thought were going to outperform, right? To have the belief that the stocks that we own are going to outperform, we need to know them inside out the way that we know MasterCard, right? And so we have four people on our research team, right? And so when you own 20, 25 companies, you're only talking about, you know, say five to 10 businesses that each analyst.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Fair value now. We mean then the context of recognizing that there's limitations in our ability to forecast the future, recognizing that there will be concerns that crop up that we haven't even thought of yet in the years ahead. And yet it certainly isn't at price at a level that we think is extreme or expensive.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“MasterCard say three to four percent of our portfolio. We own kind of 20 to 25 companies. So when we think about what is this thing worth, the big question is the duration of that growth. And so how long can this growth last for? It's really hard to forecast out beyond, say, five years. Really, really hard. And so we don't typically in our valuation assume growth beyond, say, five or a couple extra years. But this is a business that a decade from now, if they're still growing revenue at kind of 10% a year or something like that, that's a totally plausible outcome and the stock's still very cheap if you assume that's going to happen, right? I mean, if they can keep growing at this level for another 10 years or 15 years, business is insanely valuable just as we now know you could have paid 50 times earnings a decade ago and gotten that 10% growth for a decade and have done very, very well, right? And so, you know, when I say that we think it's approached kind of.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Kind of earnings growth. And so we think that the stock is getting close to pretty fairly valued now. However, this is a super high quality company. So I think that the classic value investor is the type of person who says, well, I buy it at a discount and I sell it when it gets to fair value. But think about if you own all of MasterCard. Imagine it's your business, right? And you're operating it. And you think it's worth $100 just to use a round number, right? And someone comes along and says, well, I'll pay you $100 for it. Well, you wouldn't sell it. That's why when there's mergers and acquisitions or take somebody private, they pay a premium, right? Because to get a high quality business out of the owner's hands, you need to pay up for it. And so we think this is a super high quality company and we wouldn't be sellers of it at fair value. But our size would be less, right? So MasterCard's been one of our biggest positions for the last decade. It's starting to work its way down. We've certainly been trimming it some. But in a brand new account that we're managing, we would still want to own a couple of percentage points of.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Returned 9% per year for the last decade. What would it have had to have been priced at? So yes, we know it did trade at, say, 16 times earnings in the past, but we also know it generated 20% annual returns from there. So that's not a good fair value. That was in retrospect known to be cheap. If you go back and look at, well, if MasterCard had generated market-like rates of return, it would have traded at PE multiples in the 40s and 50s for a lot of the last decade. And so we think that the multiple where it stands today is really quite reasonable. Remember, they don't have to reinvest that earnings in growing the business. So almost all of those earnings are available as cash flow. So let's say just 33 times earnings to make the math easy. You're talking about over 3% current free cash flow yield that can be used for buybacks and dividends. And then you have growth in the top line in the low double digits plus their margins are still expanding, right? So you're going to have like mid teen.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So, if you look at the business today, it trades at a PE on 2020 estimated earnings in the kind of mid-30s. It's the highest earnings multiple since we've owned the stock. We like most investors will look at what is the historical multiples for a business been, right? So if we assess a business and we say, hey, we think it's worth 23 times earnings and then we look at the history and historically it's traded between 10 and 14 times earnings, we'd be like, though markets are not perfectly efficient. That's how come we have a living to make, but they're pretty efficient, right? And typically you don't have businesses that are undervalued for decades at a time, right? However, if you simply go back and said, well, MasterCard, we now know in retrospect was deeply undervalued in the past because it's generated like 20% annual returns for a long time. The stock has, right? So one thing that we sometimes do is we'll go back and look at like, well, if the stock had”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“How much they would need to spend to keep growing the business. And they've been able to raise profit margins even more than we would have guessed in the past. So that narrowness of potential outcomes is a very important one. And as you pointed out, so if you think about like a, I don't know, a steelmaker, right? I mean, revenue can fall like 40% in a recession, but consumer spending only falls a couple percentage points. You don't have like 20% declines in consumer spending during recession. So it's a much narrower range of outcomes.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“We think about our conviction in a business as well as how cheap it is in deciding how much of a stock that we want to own. And as you pointed out, I think it's exactly right. The narrower the potential range of forecasts, the more valuable something is because the more sure of it you can be. So like a 30-year treasury is a good example, right? So this is a business that, or not business, it's a financial instrument, right? That people pay 50 times earnings for. That's a 2% yield, right? And with no growth, right? And why is that? Well, it's because it's guaranteed, right? And so when you know exactly what you're going to get, you don't have to have much risk premium in the return you're going to expect from it. And therefore, valuations can be higher. So yes, we think that this is definitely a high conviction business. It's one of the reasons we've owned it for a long time. And we have a lot of confidence in it. And modeling it is not terribly difficult. If anything, we have just overestimated.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Have Target his headcord in their district, right? And so you can always have some sort of regulatory or political risk that changes things. We've handled that by basically reserving a portion of their cash flow for regulatory risks. So that's just in our own modeling. We recognize that there's some probability that some portion of their first future cash flows will need to be utilized either to subsidize a reduction of price or to invest in new systems or to do something in reaction to regulatory risk. But it's a hard thing to frame very discreetly and quantitatively, but it's something to be aware of for sure.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Would come to a screeching stop if Master Current visa payment systems stopped working, right? And so that's a good place to be in that the economy is dependent on you, but also means that you are rightly subject to regulatory risk and not just the United States, but on a global basis, right? And so there's been more and more countries that have been demanding that payment data be stored in country, right? from like a data security standpoint and that's created costs for them And then the Durban Amendment in the United States was when they basically reduced the amount that the companies could charge for debit transactions, right? And so you could have somebody step in and say, we're changing the rules here. The Federal Reserve has that power, right? In politics in the United States, you'll see politicians screaming about either banks or the credit card networks. And usually you'll recognize that they operate in a district that has large retailers, like maybe they have”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Regulatory risk. I think it's the clear one. So there is this risk of innovation. It could be in five years. There's some entirely new way that we're all starting to use to make payments. That was kind of the worry with Apple Pay, right? That you had this hugely well-funded player who needed to move into new markets and could have decided to make this big effort. And they chose not to. And to us, that really kind of, you know, it didn't seal the deal forever, but it really spoke to the threshold and the complexity of trying to compete directly. But that's still something we monitor, of course. And Allie pay and we chat pay as much as we don't think they're going to make inroads in the United States. They could, right? There didn't used to be, we accept Allie Pay stickers at Target and Walmart near my house. And now there are. No one's using it, right? But they're still there. So it's something to track. But I think that the bigger risk is regulatory. This is payments every country needs to make sure that payments function the economy.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Their cards are accepted, but they're just not a big incremental benefit to switch over to that model, right? And so that's the thing about these chicken and egg network effect models are hard to get going. And then the key thing is that if someone can come out with a totally better system, then you can topple the old one. So that's why like Instagram can topple Facebook is because from a consumer preference standpoint, people were like, I like Instagram better. And so it can topple Facebook. Facebook bought them and sent that off. But we're not arguing that network effects-based businesses are unstoppable. It's just that you have to have a huge lead better value proposition to topple them. And in payments, it's hard. It's like you just want payments to work. You don't want it to like work better, right? It's like once they work, you want to forget about them. And so it's really hard to disrupt these networks once they're in place.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And they were small amounts, but it got everybody kind of hooked in and created this kind of viral thing. So much like, remember the old hotmail, like you would send it, you'd see. So you click on the link to sign up. And so the passing of these gifts kicked off the flywheel effect of transactions. And that's what networks, payment transactions need is payment volume to get going, right? And so they really kicked that process off. And so it's developed that way. People use WeChat pay to like pay their rent and utilities and stuff like that. It's not like just person-to-person payments. And so we just think it's a development.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Number of years ago, PayPal came out with a debit card, and it was accepted at Home Depot. And you're basically just swiping and using money from your PayPal wallet. And yet that hasn't kind of taken off in the West, right? And there's lots of things that you have to keep funding your wallet, how much money you have in any given time. But in China, when it came out, the country was almost entirely cash-based. It was an enormous positive development. It was so superior to using cash that it took off, right? And Tencent in particular did something amazing. There is a tradition of giving red envelopes of cash to people as a gift in China. And so a number of years ago, when they were trying to get the WeChat pay wallet to take off, they injected billions of dollars of cash. They gave it away. It was like spending into these wallets to enable people to gift it back and forth.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So Allie Pay and WeChat pay Alibaba and Tencent are very different businesses, but those products, WeChat Pay and Ali Pay, are functionally the same thing from the consumer standpoint. But they are totally different than VSA and MasterCard. So they're much more like PayPal. But both of them are a digital wallet that you fund from your bank. You transfer cash into your WeChat wallet or your Allipay account and you have money in there to pay for stuff with. And so there is no credit extended. There is no credit card processing fees. They're enabling both sides of the transactions. So with AliPay and WeChatPay, both sides of the transaction have a wallet with that provider. And so that's why PayPal can be seen as a threat in the United States. You could say, well, maybe we'll all just carry money in our PayPal wallet and we'll go around and pay things. So I remember.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“When the Federal Reserve during the Durban Amendment period, when they did reduce some of the fees round debits, the Federal Reserve basically looked at this and said it works. Payments work in the United States. Why would we disrupt this? There's nothing to change here. And so, you know, even when there was a regulatory view, there wasn't big changes to their fees.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Channels, right? So with VSIN MasterCard, this is why this analysis around yes, merchants complain about them, but merchants are more and more accepting them and in some cases not even accepting cash anymore because even though they complain about it, it still is creating value for them relative to carrying cash, right? And so having this ability for you don't have to take money out of the ATM, you always have all of your money in your pocket at all times to be able to pay securely to any bank in the world. It creates so much value in the world that they're 0.2% we think is just a small portion of the value they're creating, which is important only because when you talk about how VCI MasterCard have no real incentive to cut prices, one thing that you might say the other thing is that they are kind of exploiting or sucking value out of the system. And we don't think that's the case, but it is a common criticism, and we think it's a legitimate point of view, but we just think that they're actually adding tons of value. And we would point to”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And there's a really important thing because the Warren Buffett tells us the most important thing is pricing power, right? But we think there are two types of pricing power. There is the ability to raise prices because you have trapped your customers and they can do nothing about it and they hate you, but you do it anyway. And then there is pricing power in which you create so much value for your customers that they don't mind when you raise prices, right? And so we think those are two very different dynamics. And we really don't want to be invested in businesses that are exploiting their customer base. And the reason is because at some point your customers will find a way around you. At some point, innovation will come along where you say, oh my goodness. So like we invest in Netflix. Cable companies, just people hated them. They charge so much money. They touch customer service. And so early on when Netflix started streaming, some people cut the cord just despite the cable companies. They're like, I'll just go with this because I hate having to pay $100 a month and I barely even watch any of this.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“On price in a way that erodes kind of how much they're generating long term. And so those two clearly compete, especially for corporate co-branded cards. And there's flips back and forth, but it's a very stable sort of environment.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“No, I don't care. I don't want that. And so you have just internalized this assumption that anything the bank offers you will be accepted everywhere. And by definition, that means that you know it'll be a visa or MasterCard. So the real question is, well, why one versus the other? And so this is a duopoly market, not a monopoly market. And so when you're studying kind of a duopoly situation, what you care about is kind of how rational the two players are against them. It could be that Visa was to say, we're going to really go after MasterCard. We're going to slash the fees that we charge to banks and everything, and we're going to just bring this way, way, way down. And they could win share from MasterCard. They would destroy their own business in the process of doing that, right? So you would kind of win the war versus MasterCard and lose the war in terms of making money, right? And so when you have that sort of stable duopoly, they certainly compete for brands and all of that, but they don't tend to do it have”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So, if you think about Master Grant visa, when you said you don't care what card it is, what you really mean is you don't care what card it is so long as it's a visa and mastercard. If your bank said, oh, we've got these five credit cards, they have these different features, they're all Visa and MasterCard. But this other one, it's called Brand X. It's not accepted anywhere, but it's 10% cash back. You'd be like, well.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Growing there rapidly, but it's going to be a bruising fight. And we don't think that they're going to have the same level of dominance, even in 30 years. And yet, it's only 5% of merchants even accept the credit card, right? And so you can see how much growth there is ahead of them without them having to be dominant. I mean, if they ended up dominating the way they did the US and Europe, you would never want to sell this stock, right? I mean, like that would be an unbelievable opportunity for them. Shasha. Make Deb Be comple I'm looking here at myself, and I think You have I would go to my bank and I would say these are the needs I have privately, and I also have a business. They would give me a selection of five different cards.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Get added to it. So at this point, it seems like almost impossible to make payments incrementally better, right? So even if you signed everybody up, what would be the reason that somebody would switch? Because payments just work in developed markets, right? And since VSMASCAR only getting 0.2% can't undercut them a whole lot. So we just think that the idea that in developed markets they'll be disrupted. It's just not a particularly relevant competitive angle. I mean, of course, we're always watching it. The relevant analysis is in undeveloped markets where the game's still being played and fought, right? And it's clearly 10 cent that owns WeChatPay and Alibaba that owns Alipay. And we think those are very viable products, especially in India, right? Which is, you know, they already won China. India is kind of the next big market for them. And that is a robust competitive market where MasterCard is making real headway. They have real business in India. They're going to win share. They're going to keep.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Think it's just game over. And it's not that we're like, well, nobody can compete, it's that networks are winner-take-all industries naturally, right? So a network that benefits from more participants becomes more valuable as it grows. So I mentioned this idea that it's because every merchant accepts a mastercard that I carry a MasterCard. It's because every consumer carries one that merchants accept them, right? And so you can imagine if let's say earlier on there was like three networks and they each had 10% acceptance, right? Well, as they grew, one of Wind almost certainly emerged as the winner of everything because once it got a higher penetration, so it had 30% everyone else said 10, everyone would only sign up for the one that had 30. So networks benefit from what's called a network effect and competitive advantage lingo that basically says that it becomes more valuable as more participants.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And I'll pay you now, right? And so that you can't have prepaid like Amazon where you pay when you click the button, right? So there's different things that need to happen there. But one of the reasons why the FinTech, which was long seen as a disruptor, actually accelerates all this is something, think about something like Square, like the original square little square thing you could plug into your iPhone and accept credit cards. So the gardener, the babysitter, whoever could accept credit cards, MasterCard doesn't need to do all that innovation. They just need to be part of that ecosystem that powers that innovation and then recognize and support those innovations that take off. So we think it's a really positive dynamic that they don't have to invent everything in-house the way like, say, a business like Apple does, right? In MasterCard's case, they can kind of allow innovation to happen on top of their platform as long as they keep seeking to support those, which is why we've been pleased that they are winning things like the Apple credit card or Brex and a lot of kind of emerging.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A store, there's that code there. You scan it. When I was in China, I used a QR code to buy something from a vending machine. You just wave your phone there, right? And one of the reasons that's popular in India is because it's very cheap for the merchant to start accepting credit cards that way. It's like a sticker that you stick on your counter and now suddenly you're able to start acceptance with some online setup as opposed to getting that terminal and all those sorts of things. And so MasterCard needs to make sure that they don't force other countries to adopt whatever the default that evolved in the US and Europe just out of happenstance and adapt to whatever the right sorts of payment systems are there. Another example of that is e-commerce in India has been challenging historically because Indian consumers, especially outside of major cities, are used to the idea that they pay on delivery so that when the products arrive in the delivery person delivers it to you, you open the box and check it out and decide, okay, I want to keep this.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Is from all around the world. And we really think that they just have a stronger cultural focus on the globe and emerging markets. I'm sure Visa would disagree, but that's just our sense as having looked at both businesses. And so we think that they're very focused in the right areas. I won't get too deep into it, but don't forget Africa. I mean, you think about Africa, and I think a lot of American or European investors would say like, well, there's not too many businesses that are selling products into that. there is payments being made in Africa, right? And so it's also another big market that's going to over time become more and more digital. And so, you know, I think what MasterCard is needing to do is understand how each of those markets is developing. So I'll give you an example, a QR code, right? That's that funny looking barcode thing you can scan with your phone. Well, in the US, that's not a common way to make payments. But in much of Asia Pacific, it is, right? Where you go into”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You know, sometimes we get asked, well, why do you own MasterCard instead of Visa? And one of the reasons is they have more non-US exposure, non-US euro exposure, right? So both Europe and US are pretty mature markets for them. You still have mixture. You still have a lot of people using cash and checks. It's surprising to people, especially maybe younger listeners might say like, what do you mean? I go to the ATM like every other month, right? But that's not true for Americans as a group or Europeans as a group, right? So you still have that shift going on. But Asia Pacific is clearly where the next 30 years of growth is going to come from. And that's important. You know, Visa's headcord infoster city actually just down 101 from my offices here. They're very much like a U.S. business, you know, in terms of how they operate and everything. MasterCard is a very global business. Their CEO is from India, their executive.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“In serving both kind of fintech customers as well as being more aggressive in emerging markets where obviously there's a lot more long-term growth.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Or to steal growth from Visa. So, for instance, one thing that Master and Visa compete over is corporate branded cards. So if you have a card that's like the new Apple card that's so hot, well, Goldman Sachs is the bank. Credit card is issued by a bank. Apple doesn't issue credit cards. They're just the co-brand, just like United Airlines card still has, I believe it's a capital one bank behind it. And so MasterCard and Visa might compete for new corporate brands. And when they flip a brand, well, then that's more transactions across their network. So MasterCard has also been successful in winning more corporate deals. And importantly, it appears to us that many kind of new fintech or kind of modern payment brands are going with MasterCard. So the Apple card is one that's a MasterCard. Brex is become a very popular credit card that's targeted towards stardusts. And that's a MasterCard product. And so we do think that MasterCard has proven to be superior to Visa.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Even without any growth in what they do, without signing anybody else up, just kind of their existing people, right? Then you get roughly another 4% growth just from the shift away from cash and checks to credit and debit. So if you look at kind of every year across developed and emerging markets where MasterCard is currently operating, and you look at how much money consumers are spending on cash and checks or kind of non MasterCard powered payments. And then you look at the next year, it goes down every year, right? And so every year you get this kind of market share gain, not against a competitor unless you recognize that cash and checks are their competitor, right? So you get this kind of high single digit growth just from that on top of that, then you get actual kind of company sorts of growth, like them going out and entering a new country, right? Or rolling out new strategies or doing whatever they can to accelerate their own growth.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and this is why we think it's such a valuable business, like from a valuation standpoint, right? And we'll talk more about valuation in a bit. But fast growth tends to slow over time, right? Like I talked about earlier, that's just kind of the nature of when you get bigger. It's harder to keep growing, right? What was more interesting to us is businesses that grow at solid rates, like MasterCard's kind of low double digit rate, but have a very long duration to that growth, right? that are able to grow at solid levels for 20 years as opposed to businesses that can grow at 30 to 40 percent. Those are exciting, but they just don't tend to last very long. So what's driving MasterCard's growth and the reason why it's persisted and we think it'll continue to persist is right off the bat, they're basically getting 0.2% of consumer spending. And consumer spending on globally grows like four to six percent per year. So you're going to get this kind of toll on just economic growth as a baseline, right?”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Rewards, especially for high spending users, right? And so one thing that could happen is you could see some sort of pushback on that. But think about who the incentives are. I, as a consumer, I kind of like the rewards, right? So I don't pay that two and a quarter. I get paid two percent to use my credit card. I get cash back, right? And so that piece of this whole equation is unlikely to break down. But so MasterCard basically processes this. The reason their margins are so high and keep going higher is that there's not a whole lot of incremental cost to one more swipe, right? They need to keep building out their infrastructure. But it's not like there's actually like a cost to them of that swipe. It's like if you have all the servers and everything set up and you're doing a billion transactions, you do a billion in one, there's no additional cost. If you go from a billion to two billion, you're going to need more servers and more systems and more people, but not twice as many, right? And so because of that, you have this kind of fantastic scalable model.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Credit union issued card from some bank no one's heard of, and I fly down to Peru and I go into a little bodega and I swipe my card and ask for a Coke, like total trust, right? It's going to work. It's going to go through and they accept it. So MasterCard and Visa, yet, depending on the type of transaction, about 0.2% or less of the amount of transaction. So it's less if it's a debit. It's more if it's a credit card, if it's cross-border, it has higher fees. If it's cross-currency, there's lots of different elements that go into that. But the most important thing is it's a very small amount, right? And I think that's where a lot of the kind of pushback in credit cards is like, well, we need to disrupt them because the fees are like 2% and that's outrageous and we should get it lower. But that's all the banks fees, right? And the bank is collecting that money to pay for having acquired the customer, right? And for dealing for the, you know, there's the risk of default, all sorts of things. Banks do rebate a fair bit of that back in the form of...”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A month later, whether you pay it all at once or paid over time or even default, right? That's what's valuable. The merchant gets their money. And that's a really important thing. Trust is what fuels economic transactions. One of the big benefits the United States has is as much as Americans will say that we've lost trust in government and all these sorts of things, that we actually have this super high level of trust. And so in America and the developed market, we're used to this idea that like we're not going to get excessively ripped off. No one's going to give us like a fake bill or something like that, right? But this is something that was built over time, right? And so today, merchants just have 100% trust in MasterCard and VSA based cards, right? Even if a bank”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Are things called merchant acquires companies that go out and sign up merchants to accept payments? And so that's like you see the little terminal when you go to a store, right? Whether it's a square-based iPad or it's a classic terminal or whatever it might be. There's a business that's going out and acquiring those merchants and signing them up and getting them on the network. And then there's the banks that issue the credit cards to the consumer. And so you execute that. When you get rewards from using your credit card, all that's coming from the bank, right? The bank's the one with relationship with the consumer. And they're the ones that go out and sign up consumers for credit cards. And then MasterCard sits in the middle and basically processes these payments, kind of make sure all the money gets where it's supposed to go and connects everything up. And so when you swipe your credit card, the merchant is going to get their money regardless of whether or not you actually have any pay your bill, your credit card bill when it comes.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“We like the business very much, owned it for a very long time, and we think it deserves a place in the portfolio of anyone who cares about owning kind of very dominant, compellingly managed businesses. Sean, let's just start off with the really easy basics. Let's say I went to Target and spent $100 on my mastercard. How is revenue generated and additionally talk to us about what this looks like on a global scale?”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“But nobody's ever asked about it before. Just because you accept it, if no one carries it, it doesn't get done. So you can go back and for like five years now, every year you'll see an article about cabs in Las Vegas except Dally Pay or high-end boutiques in New York City take WeChat pay. And that's going to happen, but it's a small, small thing. So big picture, we think they are this dominant player, this duopoly with Visa that powers payments. They'll continue growing pretty significantly as more and more payments continuing, even the developed market, to move away from cash and checks. And it's a much more competitive playing field and emerging markets, but they're going to win some of that, right? And those markets are going to grow dramatically in India. Only 5% of retailers even accept credit cards, 5%. Maybe they don't get dominant. Maybe they only ever get to 20%. That's a huge amount of growth, right? Especially in a growing economy.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“What VC MasterCard did in the rest of the world. But then if you look at the kind of in India, it is still an open playing field. And so when we think about the growth opportunity for MasterCard, in the developed market, they'll continue growing because there is continually a shift first of growing consumer spending, but also a shift away from cash in check towards VSA Mastercard powered payments. That's not done yet. But we don't think that investors have to worry much about Alley pay or WeChat pay in the US. So in Silicon Valley here, if you go into Target or Walgreens near my house, you'll see a little sticker saying they accept Allie Pay. And there's a lot of Chinese tourists that come to Silicon Valley. And I'm sure it gets used from time to time. But when I went to Target a couple months ago, there was an AliPay. We accept AliPay sticker on the cash register and I asked the cashier. I was like, oh, how often do people use that? And she looked at me kind of blankly and I said, you know, the Alley paint, she said, I'm sorry, I don't know what that is. And I was like, well, it says right here, you accept Allie Paint. And she said, I know, but.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Isn't some new thing that's going to come along where cash to cash transfers banks to banks are going to totally disrupt VCAN MasterCard. It's real. It'll continue growing, but it's not new. And I think that the last thing, and then I'll wrap up. You go to some Q&A, is most of what I've just talked about is really about the developed market. How does the US and Europe work? But emerging markets are still in play, and China is lost, right? So in China, Face and MasterCard were kept out 10 cent and Ali pay or Alibaba launched WeChat pay and alipay. And those businesses have won, right? I was in China last October. And people, what you'll sometimes read, they don't accept credits. They do. If you go to Beijing or Shanghai, kind of anywhere that Westerners or people travel to, credit cards are accepted more and more. They're starting to be more inroads for MasterCard and Visa. But the country as a whole is lost. I mean, Alibaba did.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Apple Pay came out. So, this has been quite some time now, right? But if you look back at kind of the notes that we took, we were owners of Apple at the time. And if you look back, people thought, well, look, Apple has all of these credit cards on file. They have links to checking accounts. They have engineers. They have billions of dollars of excess cash. They might just use the iTunes credit and debit network and just start running their own payment system. And despite kind of all this money and resources, engineers and smarts and basically 15% of the wealthiest people in the world carrying their device in their pocket, they still said, nope, let's just build on top of VSA MasterCard. So what is Apple Pay? It is nothing but an easy way to use your VSA or MasterCard, right? When you swipe your watch at the store or wave your phone, what is it doing? It's billing your credit card, right? It's transacting. It may be connecting to your checking account, much like PayPal does. But look, PayPal's been around for a quarter century, right?”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Why are they going to go to the trouble of starting to accept it if nobody carries it? So if these say master graph have won that problem, and that's why today there's just no competition. Nobody is working on displacing them through setting up a new credit card network. There is various attempts to change payments in important ways, but almost all of those run on top of the MasterCard and Visa rails as they're referred to. So especially early in our ownership almost a decade ago, people talked about fintech innovation and how it was going to disrupt Visa and MasterCard. But what we've learned over time is that pretty much everybody has built on top of Visa and MasterCard. So if you talk to venture capitalists, no one's out there saying, oh, I'm funding companies that are looking to disrupt MasterCard or Visa. They're trying to build on top of MasterCard or Visa or do something entirely different in cash-to-cash payments using checking accounts and things like that. But the event that in our mind solidified the thesis here was when”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A lot of new places they don't accept cash, new bars, new restaurants, it's very common they don't accept cash. Why would they do that if credit cards were more expensive for them than accepting cash? They do it because especially if you are all in, it's actually cheaper than accepting cash. And so the thing that MasterCard and Visa did was they created this network so that you, I'm sure you have a Visa MasterCard in your wallet right now. I do. You're in Denmark. And if I flew to Denmark, they'd accept the card in my wallet and you flew here. They'd accept it. That's an amazing, amazing achievement, right? And so there is this chicken and egg problem with setting up networks like this. Imagine a new credit card company, credit card plus. It's this amazing product. There's some features about it that's just incredible. So I as a consumer say, I want that. But I go to the store. It's not accepted because very few people carry it. Well, then I'll stop carrying it pretty quickly. If the stores get some great benefit and they accept it, but no one cares.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Or whatever it might be, but really MasterCard and Visa get 0.2% or less of the transaction. Most of those other fees go to the banks. And people forget the banks are fronting money, right? People do, like, there is fraud. There is like people don't pay, right? So there's real costs incurred here. We think there's good evidence that credit cards are cheaper for merchants to accept than cash. You could look at cash and say, what do you mean there's no cost? But there is cost, right? You have to carry it to the bank in a secure manner. Employees steal from you. You miscount. You have to change out the drawer. You have to make change, right? People get sick from handling cash. There's an enormous number of expenses associated with accepting cash. Credit cards is just much more explicit. And so you can see in areas like”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Things just a cache machine, right? It produces buckets of cash, it returns most all of that cash flow to shareholders or uses it for acquisitions, and yet it's able to continue growing rapidly. So revenue growth still is in the kind of a low double digit sort of rate. So that's kind of the financial model. That's what we like about the business. And then what is the business? I mean, that's the most important thing as an investor. I think some people get lost in financial statements and forget that this is an entity that's creating value for its stakeholder ecosystem. And how does it do that? And why can it uniquely do that versus other people? So kind of briefly on the MasterCard business model, banks are the ones that lend money, right? So if you look at your credit card, it's going to say MasterCard or Visa on it and it's going to be issued by Capital One or whoever it is. There's the merchant that accepts your credit card and then there's the customer that actually swipes it, right? And so when you swipe a credit card, I know retailers might tell you, well, it's a two and a quarter percent fee to us.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Earnings, which along with the corporate tax reform of 2017, is why earnings are up 640% or 20% per year for the last decade. So Michael Mobison is a strategist who's been at different firms. He just recently moved back to Morgan Stanley. But he's done a lot of work on what's called base rate analysis. If a business is growing 15% per year this year, it's a growth business. It's likely to grow faster than other businesses in the future, right? I mean, I would guess if imagine you have two businesses, one's 15% year, one's 5% a year. And then what are they going to grow next year? Well, it's probably a good bet the faster growing business is going to grow faster in the following year. But this doesn't tend to persist. Most growth businesses slow down pretty rapidly, especially over periods like a decade. So the idea that MasterCard is still growing double digits a decade after we first bought it is unusual, right? And it shows kind of how deep their competitors are. So what we like so much about Mastercard is this.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And so, you know, when you think about a classic kind of business, say a pre-internet sort of business, like a retail store, the way you grow is you invest capital, right? You build new stores. And then those costs run through your cash flow statement or the depreciation comes through your income statement, but you're investing off your balance sheet. MasterCard is what we call a capitalite compounder. They don't need to reinvest capital to grow. basically none, right? And so the growth, the way that they fuel growth is investing in their income statement. And so this means that they're able to produce, to return almost all their cash flow to shareholders, right? If you think about like a retail store, its cash flow needs to be reinvested to keep growing. So they pay out some of that cash via dividend and use the rest to buy back stocks. And so these buybacks have had a really positive ongoing effect to earn.”
2020-02-09 · We Study Billionaires · TIP281: Intrinsic Value Assessment of Mastercard w/ Sean Stannard-Stockton (Investing Podcast) · IDENTIFIED FROM THE TRANSCRIPT