Earnings Preview: Master Card’s Fundamentals Expected To Stay Strong But FX Headwinds Might Dampen Growth

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Mastercard

Master Card (NYSE: MA) is set to report earnings for the third quarter of fiscal year 2016 on Thursday, October 28th. In the previous quarter, the company reported an earnings per share growth of 10.6% on a revenue growth of 12.7%. The U.S. based payments company grew its revenue in all streams with the strongest growth coming from transaction fees, which grew at 21.0%. However, client incentives and rebates grew even faster at 21.6%.

In recent times, the company has been focused on growing its portfolio of co-branding partners and improving its technology to keep pace with the rapidly evolving payments space. On the first front, it has added American Airlines, Bed, Bath & Beyond, PayPal, Walmart Canada and Axis Bank in India. The company also started operations in China not too long ago and expects significant increase in transaction volumes from access to the world’s biggest market (in PPP adjusted terms). Additionally, the company also acquired VocaLink, a U.K. based automated clearing house operator that will give it access to business-to-business, peer-to-peer and Government payments markets.

In recent years, the company has been spending heavily on rebates and incentives, and marketing and promotions. These efforts are with an eye on expanding the co-branding partner network, which will help the company expand its transaction fee related revenue. We expect more than 40% of the company’s revenue growth in the next three years to come from increase in revenue from transaction fees.

mastercard growth

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In the previous quarter, one of the biggest drags on the company’s revenue growth was the decline in consumer spending in key emerging markets and the loss in revenue realization due to the decline in currency value of many countries relative to the U.S. dollar. We believe that these trends continued in the third quarter, even as the gross dollar volumes in both the U.S. and internationally continue to grow, in line with the  cross-border volumes and number of transactions processed.

 

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for MasterCard
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