Growth In Volumes And Transactions Lift MasterCard’s Income
MasterCard (NYSE:MA) announced its third quarter earnings on Thursday, October 30. The company reported net income of $1 billion, a 15% year-over-year increase. Net revenues also increased by 13% year-over-year to $2.5 billion due to a combined effect of an increase in transactions processed, cross border volume and gross dollar volume. [1] Acquisitions also helped the growth in revenue by about three percentage points in the third quarter. An increase in incentives and rebates had a marginal negative impact on the earnings.
Certain tax benefits resulted in a lower effective tax rate of 28.5% during the quarter, compared to 29.9% in the previous year. The company reported earnings per diluted share of $0.87, up 19% year-over-year.
We have a price estimate of $86 for MasterCard’s stock, which is in line with the current market price.
See our complete analysis of MasterCard’s stock here
Growth In Volumes And Transactions
MasterCard’s Gross Dollar Volume (GDV) for credit and debit cards combined grew by 12% year-over-year for global operations. Growth in the U.S. slowed down to 7% year-over-year compared to 9% in the second quarter. Outside of the U.S., GDV grew by 14% year-over-year to $818 billion. [2]
Domestic assessment fees, which are charged by MasterCard based on the total GDV, increased by 8% on a reported basis to over $1 billion.
Processed transactions also registered double-digit growth to around 11 billion compared to around 10 billion a year ago. The number of cards also grew by 8% over the previous year to just over 2 billion. Revenue from transactions processed was up 13% on a reported basis to over $1 billion in the third quarter. Meanwhile, cross border fees increased by a handsome 13% year-over-year on both a reported as well as FX-adjusted basis.
Consequently, the company’s total net revenues (after adjusting for incentives and rebates) were up 13% year-over-year on a reported basis.
Performance In International Markets
For operations outside of the U.S., the company reported about a 12% year-over-year increase in GDV. During the third quarter, Asia-Pacific, Middle-East and Africa (APMEA) recorded 16% year-over-year growth, followed by a nearly 10% year-over-year increase in both Europe and Latin America. [3] Growth in APMEA slowed down compared to the previous quarter due to a decline in sentiment led by weaker economic activity in China. Going forward, we expect the Asian market to remain vital to the company’s overall growth prospects, as a moderate level of cashless transaction penetration in the region offers a vast opportunity.
In Latin America, the company witnessed a moderate improvement due to a decline in retail sales growth from 4.1% in the previous quarter to just 2.5% in Brazil. [4] Growth in Europe was marred by slow economic growth as well as a decline in consumer confidence. According to MasterCard’s SpendingPulse report, annual personal consumption expenditure (PCE) growth projections for the European region have been revised down to 3.1% from 3.5%. The growth reported in the third quarter was primarily driven by business in Russia, Turkey and Sweden.
Going forward, the company faces challenges in Europe, including the introduction of a new payments law in Russia. We will be closely following latest developments and the likely impact on the company’s performance.
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- MasterCard Incorporated Reports Third-Quarter 2014 Financial Results, MasterCard Press Release [↩]
- MasterCard Incorporated 3rd Quarter 2014 Financial Results Conference Call – Presentation, Investor Relations [↩]
- MasterCard Incorporated 3rd Quarter 2014 Supplemental Operational Results, Investor Relations [↩]
- Mastercard’s (MA) CEO Ajay Banga on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]