Mastercard earnings top expectations amid ‘remarkably resilient’ spending (From MarketWatch.com)
~ Friday, January 27, 2023 Blog Post ~
By Emily Bary, January 26, 2023
CFO says company’s ‘diversified acceptance’ model continues to pay off as consumer preferences for spending categories fluctuate
Mastercard Inc. kicked off a busy stretch for payments reports Thursday morning, beating earnings expectations for its latest quarter amid continued strength in consumer spending.
“While macroeconomic and geopolitical uncertainty persists, consumer spending has been remarkably resilient,” Chief Executive Michael Miebach said in a release.
Mastercard MA, -1.35% saw gross dollar volume increase 8% in the latest quarter, while cross-border volume rose 31%, both on the basis of constant currency. Switched transactions were up 8% in the period.
Chief Financial Officer Sachin Mehra told MarketWatch that restaurants, lodging, hotels, and travel are still areas of strength, while home-related categories have been weaker. However, Mastercard’s “diversified acceptance” model and its prevalence in a large array of categories mean that overall spending levels are more important than changing category preferences.
“We’re looking at the lens of the consumer from [the perspective of] total wallet versus what percentage is being used for home improvement versus travel,” Mehra said.
The financial-technology giant notched fourth-quarter net income of $2.5 billion, or $2.62 a share, compared with $2.4 billion, or $2.41 a share, in the year-ago quarter. On an adjusted basis, Mastercard MA, -1.35% earned 2.65 cents a share, up from $2.37 cents a share the year before. The FactSet consensus was $2.57 a share in adjusted earnings.
Revenue at Mastercard increased to $5.82 billion from $5.22 billion, while analysts were looking for $5.79 billion.
Barclays analyst Ramsey El-Assal wrote that while Mastercard topped his expectations in the latest quarter with its cross-border revenue and transaction yields, it saw lower growth in debit and credit and debit volumes than he expected.
Shares of Mastercard were off about 2% in midday trading Thursday.
Mehra noted on Mastercard’s earnings call that when it comes to cross-border spending, “most regions have recovered and are well above 2019 levels,” based on fourth-quarter results. He still sees room for recovery in Asia, especially in China, which recently moved to open its borders.
Miebach shared on the conference call that Mastercard recently partnered with SoFi Technologies Inc. SOFI, -1.38%, which became the first U.S. bank to launch on the Mastercard Installments program for buy-now-pay-later purchases.
“Our view around installments is the same as it was when there was a lot of hype around installments,” Mehra elaborated in talking with MarketWatch. While BNPL may not be of keen interest to all consumers, “we want to be present for those who have a preference for installments.”
Though rival Visa Inc. V, -0.08% shared a full-year outlook with its September quarter report because of the timing of its fiscal year, Mastercard’s full-year forecast arrived with this latest report and was of key interest heading into the event.
See also: Visa’s outlook assumes ‘no recession’ — and analysts say it may be conservative
For 2023, Mastercard executives expect low-teens growth in net revenue and mid-single-digit growth in operating expenses, both on the basis of Generally Accepted Accounting Principles (GAAP). Mastercard’s management is also calling for adjusted operating expense growth at the “high-end of high-single digits” when excluding currency and acquisition impacts.
“The quarter and FY guide were solid enough, in our view, and management’s forward commentary on the consumer spending environment was encouraging,” Barclays’ El-Assal wrote. “But we are not too surprised to see the stock underperform today, as MA’s premium valuation offered very little margin for error.”
Mastercard earnings marked the start of a busy 24-hour stretch for big payments reports. Visa will report after Thursday’s closing bell, while American Express Co. AXP, -0.57% is due to post results Friday morning.
Shares of Mastercard have gained about 9% so far in 2023, as the S&P 500 SPX, +1.10% has advanced roughly 5%.
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