Mastercard Sees Strong Growth in Fourth Quarter
We're maintaining our $352 fair value estimate for the wide-moat company.
While Mastercard MA still faces some headwinds, year-over-year growth was strong in the fourth quarter as the company continued to rebound from the impact of the pandemic. In our view, the relatively quick recovery and the company’s strong profitability through the pandemic support our wide-moat rating, and we believe the secular drivers that have supported Mastercard’s historical growth remain in place. While some near-term uncertainty remains given the rise of new variants and the fact that cross-border volumes have yet to fully recover, we think the company should be able to continue to achieve relatively high growth in the near term as headwinds ease. We will maintain our $352 fair value estimate.
In the quarter, net revenue grew 28% on a constant-currency basis, driven primarily by a 23% increase in gross dollar volume and 27% growth in switched transactions. We estimate domestic gross dollar volume in the quarter has grown at a 13% CAGR since the fourth quarter of 2019. In our view, this suggests that underlying domestic growth has actually accelerated a bit from pre-pandemic levels, supporting the idea that the pandemic has accelerated the transition from cash.
Cross-border volume remains the most depressed area, and cross-border carries outsize importance for Mastercard, given much higher fees for these transactions. But we see the results in the quarter as encouraging. Excluding intra-Europe transactions (which are priced similarly to domestic transactions), cross-border volumes grew 63% year over year on a constant currency basis. Volumes in the quarter were 98% of the 2019 level, suggesting the company has almost fully offset the pandemic decline. Numbers for the first three weeks of January were a bit above the pre-pandemic level, suggesting the omicron variant is not acting as a major drag. We continue to expect a full recovery in travel spending over time, and this dynamic could drive outsize growth for Mastercard over the next couple of years.
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