Will Mastercard Miss Earnings Expectations For FY19?

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Mastercard (NYSE: MA) will release its Q4 and full-year 2019 results on Wednesday, January 29. Trefis details expectations from the payments giant in an interactive dashboard, parts of which we highlight below. We believe that Mastercard’s FY 2019 earnings will miss consensus estimates despite surpassing revenue expectations. We expect the company’s net revenues to increase to $17.2 billion primarily due to growth in transaction processing and domestic assessment fees – beating the consensus estimate of $16.9 billion. On the other hand, the EPS figure would improve to $7.61 due to a combination of higher revenues and a steady decrease in shares outstanding. However, it would still be lower than the consensus earnings estimate of $7.69. Further, we believe that weaker-than-expected earnings for FY 2019 will overshadow the revenues beat, likely resulting in a slight decline in Mastercard’s stock price once it announces earnings. Our forecast indicates that Mastercard’s valuation is $278 a share, which is roughly 15% below its current price.

Trefis shines the spotlight on key assumptions and data for Mastercard, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Mastercard’s FY19 earnings in our interactive dashboard.

 

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(1) Mastercard’s revenue would have increased by 15.1% from $15 billion in 2018 to $17.2 billion in 2019; slightly above the consensus estimates

  • Trefis estimates Mastercard’s 2019 revenues to be $17.2 billion, 2% above the consensus estimate of $16.9 billion.
  • Mastercard’s Net Revenues grew 40% from $10.8 billion in 2016 to almost $15 billion in 2018, and we expect them to grow 26% to around $19 billion by 2020.
  • Transaction Processing fees, which involves routing of payment information and related data to facilitate authorization, clearing, and settlement of transactions on Mastercard network, would have contributed $8.5 billion to Mastercard’s 2019 revenues, making up 35% of the company’s gross revenues of $25.3 billion for 2019 (which when adjusted for $8.1 billion in expected Rebates and Incentives for the year gives us our estimate of $17.2 billion for net revenues)
  • The payment giant has added around $4.2 billion to net revenues over the last two years, out of which 55% (almost $2.3 billion) was contributed by Transaction Processing.
  • Further, the Transaction Processing business would provide $1.1 billion, which is 50% of $2.2 billion in net revenue the company would have added in 2019.
  • Similarly, Domestic Assessments have grown at an average annual rate of 18% over the last two years, and we expect it to grow at a rate of around 13% over 2019-20. It is likely to cross $7 billion in 2019.
  • Notably, we expect Mastercard to add about $1.9 billion in incremental revenues by 2020 – resulting in the net revenue figure reaching $19.1 billion.

Our interactive dashboard analysis, ‘Mastercard Revenue – How Does Mastercard Make Money?’, provides an interactive, in-depth view of the company’s revenues along with our forecasts and a comparison of trends with peers Discover Financial, American Express, and Visa.

 

(2) EPS is expected to increase by 36.1% from $5.60 in 2018 to $7.61 in 2019, although it will very likely miss the consensus estimates narrowly

  • We expect Mastercard’s 2019 earnings per share (EPS) to be $7.61 per Trefis analysis, slightly lower than the consensus estimate of $7.69 per share.
  • An increase in Net Revenues, as detailed above, coupled with a reduction in the share count, will drive EPS growth despite an expected increase in Total Expenses by 3.8%.
  • As we forecast Mastercard’s Net Revenues to grow at a faster rate than Expenses in 2019 (15.1% vs. 3.8%), this will result in a nearly six percentage point jump in MA’s Net Income Margin figure from 39.2% in 2018 to 45.1% in 2019.
  • For 2020, we believe that slightly higher growth in revenues compared to expenses would enable the net income margin figure to increase slightly to 45.8%.

Our interactive dashboard analysis, ‘Mastercard Expenses – How Does Mastercard Spend Its Money?’ provides an interactive, in-depth view of the company’s expenses and earnings margins.

 

(3) Stock price estimate ~15% lower than the market price

  • A trailing P/E multiple of 36.5x looks appropriate for Mastercard’s stock, as opposed to the current implied P/E multiple of 42.1x
  • Trefis’ forecast for Mastercard’s 2019 earnings, as wells as P/E multiple, are slightly lower than the market estimates. This works out to a fair value of $278 for Mastercard’s stock as opposed to the current market price of around $324.

 

See all Trefis Price Estimates and Download Trefis Data here

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