Mastercard Earnings: Results Are Normalizing

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $421.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

Mastercard’s MA fourth-quarter results were basically in line with what we saw from its peer, Visa V. Over the past few years, both companies have been buffeted by the COVID-19 pandemic and subsequent recovery, as well as events like the Russian invasion of Ukraine. While macro uncertainty still exists, we think results have now largely normalized, and we expect growth will hold roughly in line with our long-term expectations. We maintain our $421 fair value estimate for the wide-moat company and currently see shares as fairly valued.

Net revenue increased 13% year over year, or 11% on a constant currency basis. Gross dollar volume increased 10% year over year on a constant currency basis, and switched transactions increased 12%. Growth in both metrics declined modestly from last quarter.

We think cross-border volume remains a key area to watch, given the outsize fees for these transactions. Constant-currency cross-border volume (excluding intra-Europe transactions, which are priced similarly to domestic transactions) grew 19% year over year, down from 24% growth last quarter. We expect growth to continue to decline as we move past the post-pandemic bounceback in travel. While growth in this area is still healthy and a bit above our long-term expectations, this tailwind looks to be waning.

Adjusted operating margins (on a net revenue basis and excluding one-time items) improved to 56.2% from 55.0% last year, as the company appears to be achieving some scale benefits. However, client incentives increased 18% year over year on a constant currency basis. With incentives resuming their upward march now that pandemic-related distortions have tapered off, margin improvement on a gross revenue basis will be much harder to come by.