Stronger U.S. Dollar Weighs On Mastercard’s Q1 Payment Volume, But Is Unlikely To Hurt Full-Year Results

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Mastercard

Mastercard (NYSE:MA) released its first quarter results earlier this week, with net revenues increasing by 8.6% to $3.88 billion year-on-year and coming ahead of street estimates. Notably, Mastercard has reported an earnings beat for each of the last four quarters thanks to consistent growth in global card payment volumes. However, net revenues grew just 2% sequentially as opposed to our expectation of a 4% growth due to a decline in gross dollar volume (GDV) across the three prominent geographies: United States, Europe, and Asia Pacific Middle East & Africa (APMEA).

The Trefis price estimate for Mastercard is $238 per share, which is slightly below the market price. You can view our interactive dashboard on How Has Mastercard Fared In Recent Quarters? to observe quarterly revenue trends and modify key drivers to observe the impact on the share price. Additionally, you will find more of our Financial Services data here.

Key Revenue Drivers for Mastercard

  • Transaction Processing revenues increased by 13% to $1.9 billion year-on-year, driven by an 11.8% growth in purchase volume (local currency basis). These revenues declined sequentially, though, owing to a 5% decline in purchase volume and a 4.5% decline in switched transactions (which is expected due to seasonal effects). Purchase volume and switched transactions have grown consistently over the last few quarters, and have been the primary drivers of Mastercard’s top line.
  • Domestic Assessments increased by 10% to $1.6 billion year-on-year. A 2% increase was observed sequentially due to higher Assessment Fee (per Trefis model) over the previous quarter.
  • Cross-Border Volume Fees increased by 9% to $1.2 billion year-on-year, driven by a strong 13% growth in cross-border payment volume (local currency basis). For the full year, the management expects cross-border volume growth to be in mid-teens.
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In 2018, Transaction Processing and Domestic Assessments contributed 34% and 28% of total revenues, respectively. While Cross-border fees contributed 23%, the remaining 15% was from other sources.

GDV Declines Across All Geographies, But The Outlook For Full-Year 2019 Remains Very Strong

While the actual March 2019 retail sales data is yet to be released by the U.S. Census Bureau, the fact that Mastercard’s U.S. GDV of $451 billion was slightly below the figure for the previous quarter indicates that U.S. retail sales volumes recovered at a slower rate than what we expected after declining 0.21% in February. At the same time, a strengthening U.S. dollar coupled with global macro-economic uncertainty had a negative impact on the GDV figure for Europe and APMEA regions too – which fell 6% and 2%, respectively.

However, we expect Mastercard’s GDV to grow by 15% for full-year 2019, driven by a recovery in retail sales and positive consumer sentiment across major economies. This should help Mastercard’s revenues for the year swell 15% compared to the figure for 2018 and boost its EPS figure for the year by 36% as we detail in our interactive dashboard.

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