Despite FX Headwinds, MasterCard Beats Analyst Expectations
MasterCard (NYSE:MA) reported better than anticipated results for the fourth quarter on Friday, January 30. Net income for the quarter was $801 million, a 17% increase on a year-over-year basis. Net revenue was $2.4 billion, a 14% increase on a year-over-year basis. The increase in net revenue was primarily driven by a 19% increase in cross-border volumes, a 13% increase in gross dollar volume (GDV) and an 11% increase in transactions processed. [1] Growth in the last quarter was affected by currency fluctuations as the dollar continued to strengthen against major currencies such as the Euro and Yen. MasterCard also drastically reduced its effective tax rate by focusing on growth prospects outside of the U.S. The effective tax rate for the quarter was 20.3% compared to 32% last year for the same quarter.
The company’s operating expenses surged in the last quarter by 26% to $1.4 billion. [2] This was primarily due to an $87 million restructuring charge for the quarter caused by MasterCard streamlining its operations.
We have a price estimate of $83 for MasterCard’s stock, which is about in line with the current market price.
See Our Full Analysis for MasterCard
Moderate Growth in U.S. Economy
The U.S. economy is slowly picking as unemployment and gas prices continued to fall in the fourth quarter. Personal savings as a percentage of disposable income increased by 4.9% in December, as compared to 4.3% in November. [3] The savings created by falling gas prices is likely to increase consumer sentiment and give a boost to consumer spending in the long run. Retail sales growth slightly declined in the last quarter to 4.1% compared to 4.8% in the third quarter. An increase in holiday spending in the last quarter was able to boost GDV in the U.S., which grew by 7.5% domestically on a year-over-year basis.
International Market Affected by FX Headwinds
MasterCard derives around 70% of its GDV from the international market. The growth of Gross Dollar Volume outside of the U.S. grew by 15% on local currency basis. FX headwinds, however, dampened the growth in U.S. dollars, which saw a growth rate of 5.4%.
Europe accounts for almost one fourth of the total GDV. Even though the European economy has remained sluggish, SpendingPulse data for U.K. showed growth in retail sales by 3.6% in the last quarter, compared to 2.9% in the previous quarter. The GDV for the European region grew by 16% in local currency. However, the growth rate in U.S. dollars was only 1.8% due to the weakening of the Euro to the U.S. Dollar. Asia Pacific, which accounts for around 30% of GDV, showed positive momentum where GDV increased year-over-year by 14.7%. However, FX headwinds dampened the growth in U.S. Dollars to 10.3%. We expect that currency fluctuations will continue to impact earnings in the first half of 2015.
MasterCard is making efforts to increase awareness of its digital payment solutions in countries where cash penetration is still very high. One such effort is its collaboration with the Africa Development Bank, as around 95% of spending in Africa is still made in cash. Additionally, MasterCard has also partnered with Paylib, e-wallet technology based in France, to expand its MasterPass network in the region. [4] As of today, MasterPass is available in 16 countries and it continues to expand its presence in the global market.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
Notes:
- Form 8-K, SEC Filings [↩]
- MasterCard’s (MA) CEO, Ajay Banga on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]
- Personal Income and Outlays December 2014, Bureau of Economic Analysis [↩]
- Credit Agricole Group Joins Paylib which Extends its International Outreach Thanks to a Partnership with MasterCard, Press Release [↩]