A sliver of positive news from the Federal Reserve and an earnings beat weren’t enough to lift shares of Mastercard (NYSE:MA), because the credit-card giant traded lower after posting its Q1 earnings results on Wednesday afternoon.
The corporate’s solid results also signaled that consumer spending has not yet been significantly impacted by inflation ticking up. Yet, Mastercard stock fell on Thursday, slipping about 1% as of 12 p.m. Eastern to $441 per share.
Meanwhile, the general market was having an excellent day, with all of the key indexes trending higher. It can have been fueled by comments from Fed Chair Jerome Powell on Wednesday suggesting that a rate hike was unlikely.
Mastercard’s decline likely needed to do with an outlook that reduced its forecast revenue growth for 2024, but was that enough to warrant concern? Let’s have a look.
Consumer spending still robust
First, the excellent news: Mastercard had a solid quarter, which shows that consumer spending remains to be strong. Revenue jumped 10% to $6.3 billion while net income rose 28% to $3 billion, or $3.22 per share.
Mastercard managed to maintain its expenses in check, leading to a 2.2-percentage-point increase in its operating margin to 56.8%. Meaning this highly efficient business generated nearly 57% profit on every dollar of sales after deducting expenses.
Mastercard makes most of its revenue on fees each time a card is used, so when spending rises, it generates more income. In the primary quarter, all three of the important thing spending metrics were up significantly 12 months over 12 months. The gross dollar volume of cash spent by Mastercard users surged 10%, while cross-border volume, which consists of fees for international transactions, climbed 18%. Switched transactions, that are fees for processing and settling transactions, surged 13%.
“Our momentum continued this quarter, as we delivered strong revenue and earnings growth powered by healthy consumer spending, strong cross-border volume growth of 18% 12 months over 12 months, and recent deal wins in every region,” said Mastercard CEO Michael Miebach within the earnings report.
There had been some concern about consumer spending, provided that inflation rose in March and the Consumer Confidence Index for April fell for the third straight month. Nevertheless, this will be the explanation why Mastercard lowered its outlook somewhat, projecting net revenue increases for fiscal 2024 to be within the low end of its outlook for the low double-digits, down from the previous outlook of the high end of low double-digit growth.
No dramatic impact from antitrust settlement
Investors may additionally be wondering in regards to the impact of a $30 billion settlement that Mastercard and Visa reached in March in an antitrust lawsuit filed by merchants.
In brief, the 2 credit-card giants will probably be required to roll back swipe fees for merchants by at the very least 4 basis points for at the very least three years. Further, for five years, the typical swipe fee should be at the very least seven basis points below the present average rate. The settlement also removed anti-steering restrictions and increased the flexibility of small merchants to barter fees.
Miebach didn’t talk much in regards to the impact of the settlement on the earnings call, but he did call it a “relief” that it was over.
“Principally what happens is we’re going to have a gentle reduction of interchange rates, primary, and we’re providing more clarity and simplification around surcharging rules and discounting rules on one hand,” Miebach said on the earnings call. “We don’t expect any dramatic impact on the business from the interchange changes. And for merchants, we are going to see what decisions they make on surcharging and on discounting. We’ve seen up to now that surcharging just isn’t all the time clear to consumers.”
Mastercard’s report was viewed mostly negatively by analysts, as most lowered their price targets barely on the uncertain economic environment, the potential impacts of the settlement, and the marginally reduced revenue-growth projections.
I don’t see these headwinds as enough to alter my view much on Mastercard. The settlement could have a slight impact, but overall, that is an excellent stock that within reason valued and has been remarkably resilient through various economic and market cycles. It still looks like a solid buy.