Mastercard Delivers Strong Fourth Quarter

Mastercard’s MA fourth-quarter results provide further confirmation of the growth opportunities in front of this wide-moat franchise, as the shift toward electronic payments continues around the world. While management provided some bullish commentary on its expectations over the next few years, we remain comfortable with our projections and will maintain our $165 fair value estimate.

Excluding currency effects, net revenue increased at a 17% rate. While an accounting change drove 5 percentage points of this increase, we think this result showcases the secular tailwinds MasterCard is currently enjoying, and we think this dynamic is in place for the foreseeable future, barring a major macroeconomic turn.

Adjusted operating margins improved to 52.3% in the quarter, compared with 51.0% last year. We think the scalability of the business model and strong growth will allow for ongoing margin improvement over time but would note that we are not overly concerned about near-term margin trends. Given the ongoing growth of the industry and the fact that the company’s wide moat is driven by a network effect, we think the most critical factor for MasterCard from a long-term perspective is fully participating in the industry’s growth, even if the investment necessary to do so negatively impacts margins in the near term.

MasterCard, like Visa, saw cross-border growth slow a bit, with only a 17% growth rate in the quarter and, like Visa, pointed to the spike in cryptocurrency activity last year as a culprit. However, its growth in this payment type remains much better than its peer, suggesting management is executing better on this opportunity.

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