Mastercard Holds Up Well in Fourth Quarter

Mastercard Stock at a Glance

• Current Morningstar Fair Value Estimate: $369
• Mastercard Stock Star Rating: 3 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable

Mastercard Earnings Update

We think Mastercard’s (MA) fourth-quarter results show the wide-moat company holding up relatively well amid a mix of headwinds and tailwinds. As expected, growth is slowing, and uncertainty in the macroenvironment clouds the near-term view. But the company also has some factors working in its favor in the current environment, and the long-term picture remains bright, in our view. We will maintain our $369 fair value estimate and see the shares as fairly valued at the moment.

Management described consumer spending as “resilient” in the quarter. Net revenue was up 12% year over year, or 17% excluding currency impacts. Gross dollar volume (excluding currency impacts) and transactions both increased 8% year over year, which represents modest deceleration from the previous quarter, but we see the level of growth as solid in an absolute sense.

Cross-border transactions have been the biggest swing factor for the business over the past few years, due to the relatively large fees Mastercard collects on these transactions and the pandemic-related decline and subsequent recovery in travel. Constant-currency cross-border volume excluding intra-Europe transactions (which are priced similarly to domestic transactions) grew 38% year over year in the quarter, which marks a significant deceleration from last quarter, although growth remains quite strong. The impact of the rebound in cross-border transactions on overall revenue is likely to diminish going forward as the company runs against more difficult comparisons, and this recovery could be at risk in the near term if the economy takes a negative turn. However, the reopening of China should act as a modest boost.

Strong growth continued to translate into margin improvement, thanks to the scalability of the business, with adjusted operating margins improving to 55.0% from 54.2% last year. But with growth normalizing and margins essentially fully recovered to prepandemic levels, improvement going forward may be modest.