Mastercard Stock Drops on Slower Spending

Mastercard Stock

Mastercard Stock (NYSE:MA)

Mastercard Inc. (NYSE:MA) reported $2.65 per share in fourth-quarter 2022 adjusted earnings, beating the Consensus Estimate and our estimate of $2.56. Year on year, the bottom line increased by 13%. Mastercard stock fell by nearly 2% following the results as card spending slowed.

Mastercard, the leading technology company in the global payments industry, reported $5,817 million in revenue in the current quarter, up 12% year on year. The revenue surpassed the consensus estimate of $5,766 million and our estimate of $5,792.6 million.

Resilient consumer spending, cross-border travel recovery, cross-border volume growth, higher gross dollar volume (GDV), and increased switched transactions contributed to Mastercard’s strong quarterly results. Its exposure to Asian economies contributed to improved performance. However, rising operating expenses offset some of the gains.

Operational Performance in the Fourth Quarter

GDV (representing the aggregated dollar amount of purchases made and cash disbursements obtained from MasterCard-branded cards) increased 8% year over year to $2,133 billion in the quarter under review. This was less than our $2,189 billion estimate.

Cross-border volumes (a key measure that tracks card spending outside the issuing country) increased 31% yearly in local currency. Switched transactions, which measure how many times a company’s products are used to facilitate transactions, totaled 34 billion. The metric increased by 8% year on year.

Other revenues increased 11% year on year to $2,045 million, with acquisitions accounting for 1% of the increase. Cyber & Intelligence and Data & Services solutions drove the remaining growth. It outperformed our estimate of $1,910.1 million.

Rebates and incentives increased 14% year on year in the quarter under review, compared to our estimate of 13.1% growth.

As of December 31, 2022, Mastercard’s clients had issued 3.1 billion Mastercard and Maestro-branded cards.

Operating expenses increased 10% year on year to $2,633 million, owing primarily to higher general and administrative costs. The figure fell short of our estimate of $2,657.9 million.

Operating income of $3,184 million increased from $2,827 million the previous year and exceeded our estimated $3,134.6 million. The operating margin increased 50 basis points year on year to 54.7%, slightly exceeding our estimate of 54.1%.

The Balance Sheet

Mastercard ended the fourth quarter with $7,008 million in cash and cash equivalents, down from $7,421 million at the end of 2021. The amount is significantly greater than the current portion of long-term debt ($274 million).

Total assets of $38.7 billion increased from $37.7 billion at the end of 2021.

Long-term debt amounted to $13.7 billion, up from $13.1 billion as of December 31, 2021.

Total equity fell to $6.4 billion from $7.4 billion at the end of 2021.

Net cash provided by operating activities increased 18.3% from the prior-year comparable period to $11.2 billion in 2022.

Mastercard repurchased 7.4 million shares for $2.4 billion in the fourth quarter. As of January 23, 2022, it had $11.6 billion remaining in its authorized share buyback program.

Furthermore, Mastercard distributed $473 million in dividends during the quarter under review.

Q1 2023 Prospects

Management expects net revenues to increase by the high end of the high single digits in the first quarter of 2023, compared to the previous quarter’s reported figure. Year over year, operating expenses are expected to rise by the mid-single digits.

Management expects net revenues to increase by the low teens from $22,237 million in 2022. Operating expenses are expected to rise by the mid-single digits from $9,973 million in 2022.

In 2022, adjusted earnings per share of $10.65 increased 27% year on year. The current Consensus Estimate for the metric for 2023 is $12.04 per share.

Mastercard stock performed well in 2022, gaining nearly 10%.

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About the author: Stephanie Bedard-Chateauneuf has over four years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on consumer stocks, cannabis stocks, tech stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.