Earnings Review: Master Card Starts 2017 With A Strong First Quarter

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Mastercard

Master Card (NYSE: MA) posted an extremely strong set of first quarter results for the financial year 2017. The company reported an earnings per share (EPS) growth of 16.3% on a revenue growth of 11.8%. In line with our expectations, the company posted strong growth across all business divisions, with transaction processing fees in the U.S. growing at 15.6% for the quarter. The only downside for the company was that client incentives and rebates grew faster than overall revenue growth at 23.1%. These trends are similar to what we witnessed in the previous quarters and in line with our expectations for the company. We’ve written about how increased spending on marketing and promotions will drive the company’s expense growth going forward and how the company can benefit from this trend.

ma q1 17

The company’s expenses grew at the same pace as revenues, meaning that the company’s operating margin stayed just about flat. Going forward, we expect Master Card’s expenditure on sales and marketing, and client incentives to grow slower, especially as it integrates the capabilities of NuData Security into its software suite. Credit card customers prefer security and ease of use over reward points, and the company’s focus in this direction can have a significant impact on the bottom line, as well as aid it to grow its transaction volumes both in the U.S. and internationally. In this quarter, Gross dollar volume (GDV) of processed transactions grew at 2% in the U.S.  Cross border volumes grew at 13% on a local currency basis. The number of processed transactions grew at 17% globally.

Master Card is in an extremely strong position currently. It is focused on increasing the revenue from transactions processed on its network in the U.S. as well as internationally. This can be achieved through three routes: 1) increasing the number of Master Card issued cards in circulation, 2) increasing the spend per customer through increasing ease of use, security, reward points, and size of co-branding partner in the network, and 3) increasing the number of devices through which payments can be made. Recent deals with American Airlines, Bed, Bath & Beyond, PayPal in the U.S., Walmart in Canada and China, Axis Bank in India, and Amadeus (an international travel company) will help the company on this front. Thus, we expect the company to continue growing at a strong rate going forward.

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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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