Will Mastercard’s Strong Volume Growth Continue In 2019?

by Trefis Team
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Downside
241
Market
238
Trefis
MA
MasterCard
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Mastercard (NYSE:MA) released its fourth quarter and annual results on January 31, with annual net revenue growing by 20% to $15 billion and EPS rising by 41% to $6.49 (Non-GAAP basis). Ignoring the new revenue recognition rules and one-time events, the growth was 15%, similar to last year. Looking at quarterly results, net revenues increased by 17% to $3.8 billion and EPS increased by 40% to $1.55.

Gross dollar volume and number of transactions are key to Mastercard’s revenue. For the quarter, gross dollar volume, purchase transactions, cash transactions and switched transactions increased by 14%, 21%, 10% and 19%, respectively. Averaging for the previous four quarters, annual growth is similar. These revenue drivers are much higher than last year, where gross dollar volume growth was 8.4% and purchase transaction volume was 13%. Our price estimate of $214 per share for Mastercard’s stock is similar to the market price.

Segment Highlights

  • Domestic assessments are fees charged by the company on the basis of gross dollar volume. For the year, domestic assessments were up by 20%, higher than GDV growth because of new revenue recognition rules.
  • Transaction revenue is driven by transaction growth. For the year, transaction revenue grew by 19%, driven by similar growth in different transaction categories.
  • Cross border fees increased by 19%, driven by a similar cross border volume growth of 18%.

Total operating expenses increased by 31%, much higher compared to last year. On excluding special items, Mastercard Impact Fund contribution and revenue recognition rules, operating expenses increased by 8% as explained by the company’s management.

Management’s Outlook

Management expects low-teen growth in net revenue, mid-teen growth in cross border transactions, high single-digit growth in operating expenses and a 19-20% effective tax rate for the next fiscal year. However, management exercised some moderation in the wake of issues such as trade tensions, interest rates, consumer confidence, and other macroeconomic factors.

You can use our interactive dashboard What to expect from Mastercard in 2019 to change key drivers and observe their impact on Mastercard’s valuation.

 

 

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