Mastercard Announces New CEO, Cuts Revenue Forecast

Mastercard MA announced that its current CEO, Ajay Banga, will step down as CEO at the end of the year. Additionally, the company expects the coronavirus to negatively impact revenue in the first quarter. Neither of these announcements materially affect our long-term view, and we will maintain our $268 fair value estimate and wide-moat rating.

Michael Miebach, who currently serves as chief product officer, will replace Banga as CEO. Miebach has been with the company for 10 years. We like that he has held leadership positions in the company across geographic regions, as we expect more of the company’s growth to come internationally over time. Still, given that the company has turned to a company veteran for the CEO role, and the fact that Banga will remain as chairman, we don’t expect any major strategic pivots as a result of this change. We would view staying the course as a wise move for Mastercard, which we believe has generally outperformed Visa in recent years. While this is in part due to its smaller size and geographic mix, we think the company’s performance speaks to the quality of its management team.

Mastercard also adjusted its guidance for the first quarter due to the impact of the coronavirus. Management now expects year-over-year net revenue growth of 9%-10%, excluding currency effects and acquisitions. This is 2-3 percentage points lower than its previous guidance. We believe the impact will mainly be felt in cross-border transactions, which are critical for the company as the fees on cross-border transactions are much higher than the fees for domestic transactions. We note the ultimate spread of the coronavirus and the impact on the global economy, and specifically on global travel, are still highly uncertain. Because of their relative dependence on cross-border consumer transactions, Mastercard and Visa are particularly exposed in the near term. However, we think the long-term picture for these companies remains very bright.

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