MasterCard Earnings Preview: Growing U.S. Economy, Mobile Payments To Drive Spending
MasterCard (NYSE:MA) is scheduled to report earnings for the first quarter of 2015 on Wednesday, April 29. For the fourth quarter of 2014, the company reported a 17% year-over-year increase in net income to $801 million. Net revenue increased by 14% on a year over year basis and reached $2.4 billion. 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. We expect these drivers to maintain their growth in the this quarter as well, as the company continues to focus on expanding its digital payment platform globally. [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’s continued efforts to tap into the mobile payment space, accompanied by the gradual improvement of the U.S. economy, is likely to drive growth for the first quarter. However, revenues earned from the international market may take a hit due the strengthening of the U.S. dollar.
We have a price estimate of $94 for MasterCard’s stock, which is slightly above the current market price.
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Optimistic U.S. Economy Outlook To Drive Consumer Spending
MasterCard derives around 30% of its GDV from the U.S. Cash penetration in the U.S. is around 54% of Personal Consumption Expenditures (PCE), indicating that around 46% of consumer spending is non-cash, which higher than regions such as Latin America, Asia and Europe, where cash penetration as a percentage of PCE is around 92%, 93% and 77% percent, respectively. This also suggests that future growth of MasterCard in the U.S. is more likely to come from improving consumer sentiment and other macroeconomic factors than increased non-cash penetration. [2]
The unemployment rate in March declined to 5.5%, [3] while Real Disposable Personal Income increased by 0.2% in February compared to a 0.9% increase in January, while personal savings as a percentage of disposable personal income was 5.8% in February compared to 5.5% in January 2015. [4] While there have been some setbacks, we expect the U.S. economy to spur spending in the first quarter.
International Markets To Be Affected by FX Headwinds
MasterCard derives around 70% of its GDV from the international market, primarily from the Asia Pacific, Middle East and Africa region (APMEA) and Europe, which each account for 30% of the company’s total GDV. On a local currency basis, APMEA GDV grew 14.7% during the fourth quarter of 2014, but the weakening of Asian currencies against the U.S. dollar meant that the growth rate on a nominal reported basis was just 10.3%. The impact of FX headwinds were worse in Europe, where GDV grew at 16.2% on a local currency basis and 1.8% on a nominal reported basis, due to the weakening of the Euro. We expect that currency fluctuations will continue to impact earnings in the first half of 2015.
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Notes:- Form 8-K, SEC Filings [↩]
- MasterCard Incorporated 2014 Investment Community Meeting, Press Release [↩]
- Employment Situation Summary, Bureau of Labor Statistics [↩]
- Personal Income and Outlays, Bureau of Economic Analysis [↩]