Morningstar | Mastercard Delivers Strong Fourth Quarter
Mastercard’s fourth-quarter results provide further confirmation of the growth opportunities in front of this wide-moat franchise, as the shift toward electronic payments continues around the world. While management provided some bullish commentary on its expectations over the next few years, we remain comfortable with our projections and will maintain our $165 fair value estimate.Excluding currency effects, net revenue increased at a 17% rate. While an accounting change drove 5 percentage points of this increase, we think this result showcases the secular tailwinds MasterCard is currently enjoying, and we think this dynamic is in place for the foreseeable future, barring a major macroeconomic turn.
Adjusted operating margins improved to 52.3% in the quarter, compared with 51.0% last year. We think the scalability of the business model and strong growth will allow for ongoing margin improvement over time but would note that we are not overly concerned about near-term margin trends. Given the ongoing growth of the industry and the fact that the company’s wide moat is driven by a network effect, we think the most critical factor for MasterCard from a long-term perspective is fully participating in the industry’s growth, even if the investment necessary to do so negatively impacts margins in the near term.
MasterCard, like Visa, saw cross-border growth slow a bit, with only a 17% growth rate in the quarter and, like Visa, pointed to the spike in cryptocurrency activity last year as a culprit. However, its growth in this payment type remains much better than its peer, suggesting management is executing better on this opportunity.
During the call, management laid out some expectations for the next three years. The company expects top-line growth at a low-teens level. Additionally, management has committed to maintaining a minimum operating margin of 50% over this period. As we noted, we would prefer the company to reinvest if that is necessary to maintain growth and appreciate the fact that management does not seem focused on improving near-term margins.
Mastercard is a technology company in the global payments industry. The company's solutions enabling consumers to use electronic forms of payment instead of cash and checks. The company provides a range of payment solutions and services using its brands, including Mastercard?, Maestro? and Cirrus?. The company is a multi-rail network that provides customers one partner to turn to for their domestic and cross-border payment needs. The company has additional payment capabilities that include automated clearing house transactions. The company also provides offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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