MasterCard Earnings Confirm Continuing Trend Away From Cash
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MasterCard Inc. (NYSE: MA), the world’s second largest payment network, reported strong earnings on the continued global shift away from paper-based payment methods. The company did take a $495 million charge related to price-fixing litigation, but excluding charges the company had a strong quarter. Ex-charges net income was up to $514 million or $4.03 a share from $415 million or $3.17 a year earlier. According to Bloomberg’s analyst survey expected earnings were $3.91 a share, which means MasterCard handily beat expectations in its core earnings. Profit for the quarter was up 24% on increased credit and debit card spending.
US spending on MasterCard credit cards was up 6.6% for the quarter, to $143 billion, and debit card spending was up 18%, to $139 billion. This mirrored the trends the company saw worldwide with global debit card spending up 21% and global credit card spending up 14%. Credit card companies and payment networks alike have benefitted from the global shift away from cash.
MasterCard and its larger competitor, Visa (NYSE: V), differ from competitors American Express (NYSE: AXP) and Discover (NYSE: DFS) in that they only act as a processing network, where AmEx and Discover actually provide credit. Regardless of the distinction, they tend to trade together and this earnings season has been no different. Both AmEx and Discover had already posted strong earnings, which raised the expectations for MasterCard, who at this point has raised the bar for Visa.
AmEx posted a strong increase in total revenue $7.74 billion up from $7.32 billion the previous year and an 8% growth in average spending per card. Discover also reported strong revenue growth for their quarter and an 8% growth in credit card sales volume. On the downside, both companies did increase the size of their loss provisions for the quarter, something that neither MasterCard nor Visa has to worry about. MasterCard and Visa aren’t exempt from legal woes, however, and that’s where the $495 million charge comes into play.
Both companies are accused of price-fixing on their payment processing networks with a hearing scheduled for September this year. The suit is expected to settle before the court date, with analysts at Jefferies Group estimating a range of $10 to $15 billion for the total settlement. The rivals have already come to an agreement on how to divide settlement responsibility, with Visa responsible for 67% and MasterCard responsible for 12%, the rest is allocated among others involved.
Related to the price-fixing issue are the new regulations in place on the interchange fees and a rule that forces banks to use multiple processing networks for their debit cards. MasterCard stands to gain some business from the multiple network rule, which goes into effect April 1st, because it will force banks to abandon their exclusive deals with Visa.
MasterCard and Visa shares have both had strong years up 57.93% and 46.96% respectively. Visa has a stronger dividend at 0.83% compared to MasterCard’s 0.16%, but both offer an attractive value. The global trend is away from cash and checks and toward plastic. Both companies carry less risk than their credit-lending competitors and both are poised to benefit as the global economy recovers. I own shares of Visa and am bullish on both companies.
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