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01 February 2021

Mastercard Exceeds Expectations

Mastercard closed 2.67% up on Thursday (28th January) as its fourth-quarter earnings beat analysts’ estimates, continuing the trend of US S&P 500 companies exceeding expectations in their latest set of results.

Revenue for the fourth quarter decreased to US$4.1bn from US$4.4bn the previous year yet edged the general consensus of US$4bn. The fall in revenue came as no surprise, with the pandemic causing a significant decline in travel and retail transactions. Cross-Border payments equated to 22% of Mastercard’s overall revenue stream in 2019 which paved the way for strong headwinds in 2020. It was, therefore, expected that Cross-Border volume would take a hit, decreasing 29% from the previous year’s quarter, a significant contribution to the 7% fall in revenue.  
In contrast, Mastercard’s ‘Other Revenue’ streams rose 16% on the same period last year, as well as transaction processing being up 5%. With Data Analytics, consulting and other services which are not directly linked to payment processing now accounting for 33% of Mastercard’s overall revenue, it has acted as an offset to what would have otherwise been an underwhelming year for companies within the payment processing sector.

Earnings were no doubt affected by COVID-19: although net income beat estimates at US$1.79bn or a diluted EPS of US$1.78, it was down from US$2.1bn or US$2.07 a share against the previous year’s fourth quarter.
Gross Dollar Volume - the amount of purchases made with all Mastercard branded cards worldwide– also rose 1% in Q4 2020. Despite not matching competitor VISA’s payment volume increase of 5%, the figures are positive, highlighting the resilience of the Mastercard brand in a challenging environment. CEO Michael Miebach said “During the quarter, we expanded key partnerships around the globe, and our acquisition of Finicity added to our Open Banking portfolio. We are encouraged by the availability of effective vaccines, and we remain focused on the innovations that will enrich the digital experience, strengthen security and trust, and enable choice through our multi-rail platform, all of which position us well for the future.”

As quoted above, the availability of effective vaccines is encouraging; with lockdowns expected to ease at some point in 2021 a wave of spending should follow suit, which is promising for Mastercard. If it can maintain demand through its other revenue streams, a rebound in Cross-Border Volume and transaction processing should provide the revenue growth that shareholders are looking for.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Mastercard Exceeds Expectations

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