Mastercard Earnings: Growth Holds Strong as Consumer Spending Remains Stable

Key Morningstar Metrics for MasterCard

• Fair Value Estimate: $520.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of MasterCard’s Earnings

Mastercard’s MA steady top-line growth in the fourth quarter suggests consumer spending is holding up well.

Why it matters: Year-over-year constant-currency revenue growth in the fourth quarter was 15%, in line with the previous quarter and the full-year result.

• Global volume growth on a constant-currency basis was 7%, down a bit sequentially due to the Capital One debit roll-off in the United States and some tough comparisons internationally. However, switched transaction growth held flat at 10%, and we think the underlying numbers suggest that consumer spending trends are holding steady for now.
• Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 13% year over year during the quarter, in line with the previous quarter. We think cross-border volume has fully normalized. Going forward, we see cross-border volume as the most macro-sensitive part of the business, as it is driven mainly by travel and online spending.

The bottom line: We will maintain our $520 fair value estimate for the wide-moat company and see the shares as fairly valued.

• Adjusted operating margin (based on net revenue) in the quarter was 57.7%, compared with 56.3% last year. For the full year, adjusted margin improved 80 basis points. This rate of improvement is roughly in line with our long-term expectations.
• During the year, the company returned about $14.5 billion to shareholders through buybacks and dividends. We’re pleased to see Mastercard continue to return almost all of its free cash flow to shareholders. However, we think a shift toward a higher dividend might be a positive, as it would make the company’s commitment to capital return more explicit.