Skip to Content
Stock Analyst Update

Mastercard Results Show Bite From Growth

We are maintaining our fair value estimate for this wide-moat firm despite the impact COVID-19 will have on the company's near-term growth.

Mentioned:

While wide-moat Mastercard (MA) saw only about a one-month effect from the COVID-19 crisis in the first quarter, the results show the significant impact the current situation will have on the company’s near-term growth. However, in our view, nothing in the quarter impacts the favorable long-term outlook for the company. We expect to make some changes to our near-term assumptions, but we will maintain our $272 fair value estimate.

Net revenue grew 5% year-over-year excluding currency impacts. This reflects the blend of more normalized growth and the declines the company has seen more recently due to the impact of COVID-19. Management provided some disclosures which show that transactions have been declining at about a 20%-25% year-over-year rate through April and the situation has yet to materially improve. As such, we expect the company will see a material decline in revenue until the situation starts to normalize.

Compared with other payment processors, Mastercard is more exposed to this situation due to its reliance on cross-border transactions, for which it charges significantly higher fees. Cross-border revenue accounted for 22% of gross revenue last year. In recent weeks, the company has seen a roughly 50% year-over-year decline in cross-border volume, as much of cross-border activity is travel-related, although the component that is related to online commerce has provided some ballast. We think a full bounceback in travel could be more delayed than in other areas.

On a net revenue basis, operating margins declined to 55.3% from 56.9% last year. While we expect management to take some actions to rein in cost increases, we think the fixed nature of payment processing will result in margin pressure while volume declines persist.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Brett Horn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.