Morningstar | Mastercard Looks Good in First Quarter. See Updated Analyst Note from 30 Apr 2019
Mastercard delivered a strong first quarter, with both solid growth and margin improvement, but nothing in the quarter alters our long-term view. We will maintain our $236 fair value estimate and wide moat rating.Excluding currency effects, net revenue was up 13% year over year, in line with the growth rate we expect from the company over the next few years. The growth was driven by a 12% increase in gross dollar volume, with Europe continuing to be the best growth region.
Mastercard did see a bit of a slowdown in cross-border volume, which was up 13% year over year excluding currency effects, down from the high-teens level the company had seen in recent quarters. This was expected, and we saw a similar phenomenon at Visa, whose management attributed the trend to macroeconomic issues and the strong dollar. Still, Mastercard continues to materially outperform its peer on this front, which we think is a credit to management. Cross-border transactions are particularly lucrative for Mastercard, and we focus on this area as a result. We think that smaller and more regional networks are building out capacity for cross-border transactions, which could eat into growth a bit in the coming years, but at this point we think Mastercard’s competitive position in this area remains secure.
Mastercard saw strong margin improvement in the quarter, with adjusted operating margins coming in at 56.9%, compared with 54.2% last year. Management noted that the improvement was in part driven by the timing of marketing expenses and that full-year margin improvement should be more modest. Longer term, we think the company’s strong growth and the scalable nature of the business should allow for ongoing margin improvement. However, we expect this process to be somewhat lumpy, given that Mastercard will need to invest to exploit new opportunities, and management, rightly, is not 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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