MasterCard Earnings Preview: Emerging Markets Growth In Focus

October 29th, 2014 by Trefis Team
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MasterCard (NYSE:MA) is scheduled to report its third quarter earnings on Thursday, October 30. In the previous quarter, the company reported a 10% year-over-year increase in net income on the back of an increase in gross dollar volume (GDV) and cross-border transaction volumes. [1] During the third quarter, we expect MasterCard to report solid growth at similar levels as the previous quarter. Emerging markets will remain a strong focus for the company, and a slightly more confident U.S. economy should add to the company’s growth in the third quarter. We have a price estimate of $86 for the company’s stock, which is about 10% higher than the current market price.

See our complete analysis of MasterCard’s stock here

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Over the past few months, the U.S. economy has been on an upward growth trajectory with most macroeconomic indicators exhibiting improvement. [2] The unemployment rate has come down to around 6%, while personal consumption expenditures (PCE) increased about 0.1% and 0.5% during the months of July and August, respectively. During the two months, disposable personal income also increased by about 0.2-0.3%. [3] According to MasterCard’s research report, retail sales grew by about 4% year-over-year in the month of August, and the outlook remains positive. [4]

These indicators point to a better consumer sentiment in the U.S. economy, and we expect this improvement to translate into growth for MasterCard in the U.S. during the third quarter.

Emerging Markets Remain In Focus

Nearly 30% of MasterCard’s international gross dollar volume comes from markets in Asia-Pacific, the Middle East and Africa (APMEA), while Latin America accounts for about 8% of GDV. All these regions reported strong growth during the first half of 2014. GDV has grown 18% year-over-year in APMEA, 14% in Latin America and 14% in Europe. [5]

Emerging markets – particularly in Asia and Latin America – provide ample opportunity for expansion, as many transactions in these regions are currently cash-based. The gradual transition to card-based transactions and e-commerce, coupled with growth in personal consumption expenditures, provides a significant opportunity for MasterCard to generate new business going forward. [5]

During the third quarter, we expect growth to be moderate due to a tepid economic environment globally. However, given the long-term growth prospects these markets, MasterCard will be looking to increase engagement with customers and merchants in order to expand its network. We will be keeping a close watch on how the company performed along these parameters in the third quarter.

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Notes:
  1. MasterCard Incorporated Reports Second-Quarter 2014 Financial Results, Investor Relations [↩]
  2. National Income and Product Accounts, Bureau of Economic Analysis [↩]
  3. Personal Income and Outlays, Bureau of Economic Analysis [↩]
  4. SpendingPulse™ August 2014 Global Retail Sales Report, MasterCard Press Release [↩]
  5. MasterCard Investment Community Meeting, Investor Relations [↩] [↩]