Mastercard Earnings: Growth Picks Up

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $465.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

Mastercard’s MA recent results suggested that consumer spending was largely holding steady as impacts from one-time issues started to fade. But fourth-quarter results suggest the environment may be improving a bit. We will maintain our fair value estimate of $465 per share. We see the stock as modestly overvalued. The quarter suggests the near-term outlook may be a little better than we anticipated, and we think the market is reacting to that, but we believe there’s still significant uncertainty on this front.

On a constant-currency basis, net revenue grew 16% year over year, up from 14% last quarter. Payment volume grew 11.6% on a constant-currency basis, up from 10.5% in the previous quarter. Management pointed to low unemployment and moderate inflation as supportive of consumer spending.

Cross-border volume has been a tailwind for the networks over the past couple of years, as the bounceback in travel from pandemic lows drove outsize growth. That tailwind has been fading in recent quarters, but this quarter bucked the trend. Constant-currency cross-border volume, excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 20% year over year, up from 17% last quarter. We believe most of the benefit from the travel recovery has been realized, but this quarter suggests there could be further upside. Still, we’d like to see more than one quarter’s data to materially revise our view.

Adjusted operating margin improved to 56.3% from 56.2% last year. For the full year, the company saw a 40-basis-point improvement. Margin improvement appears to have slowed, but we don’t read much into near-term margin results, as we think lower margins are often driven by investments for growth. Client incentives grew 17% year over year on a constant-currency basis. We think incentives growing faster than revenue supports our view that Mastercard will not achieve margin improvement on a gross revenue basis over time.