Mastercard Declines After Revenue Misses Analysts’ Estimates

  • Purchase volume declines in Europe while increasing overall
  • Net income climbs 4.8% to $933 million, exceeding estimates

Mastercard Inc. fell the most since November after reporting fourth-quarter revenue that missed analysts’ estimates as a stronger dollar hurt results in Europe.

Mastercard dropped 2.4 percent to $106.63 at 11:24 a.m. in New York, the third-worst performance in the 67-company S&P 500 Information Technology Index. The shares have gained 3.2 percent this year.

Revenue increased 9.5 percent to $2.76 billion from a year earlier, the Purchase, New York-based company said Tuesday in a statement, trailing the $2.79 billion estimate of analysts surveyed by Bloomberg. Operating expenses declined 1.2 percent to $1.4 billion.

Mastercard, led by Chief Executive Officer Ajay Banga, has said revenue growth may be crimped as it spends more on rebates and incentives and signs deals with retailers. Consumers now demand better rewards and merchants continue to seek improved terms, forcing card networks and banks to sweeten offers.

“While this quarter was slightly slower growth than anticipated, we believe the fundamentals of the business continue to be sound,” Darrin Peller, a Barclays Plc analyst, said in a note to investors.

Profit Rises

Net income rose 4.8 percent to $933 million, or 86 cents a share, from $890 million, or 79 cents, a year earlier, the company said in the statement. That beat the 85-cent average estimate of 30 analysts surveyed by Bloomberg. Adjusted net income, which excludes a charge related to merchant litigation in the U.K., was $940 million, the company said.

Purchase volume, a measure of customer spending, rose 3.8 percent to $898 billion, based on local currency, while declining 2.6 percent in Europe, the company said. Rebates and incentives increased, fueled by the jump in spending and new and renewed agreements with banks that issue the company’s cards, according to the statement.

Spending on advertising and marketing is expected to increase by $40 million in the first quarter to promote Masterpass, the firm’s digital wallet and mobile-payments platform, Chief Financial Officer Martina Hund-Mejean said Tuesday on a call with analysts.

“Because of the launch of Masterpass, we enabled 80 million consumer accounts, we really feel like we need to do more on the advertisement side,” Hund-Mejean said in a telephone interview. “We now have a really good foundation, we have a critical mass and that is the time for us to be launching these kind of advertisements.”

Stonger Dollar

Mastercard attributed the drop in European volumes to a regulation implemented last year that prohibits card networks from charging fees on transactions that don’t use their payment channels. Excluding the impact of the regulation, purchase volume in Europe rose 16 percent, the firm said.

Hund-Mejean said the firm missed estimates for revenue because the dollar strengthened against the euro and British pound more than expected. The euro slid 6.4 percent to $1.0519 in the fourth quarter, its biggest quarterly decline since March 2015. The pound weakened 4.9 percent to $1.2344, its sixth-consecutive quarterly drop.

Mastercard expects revenue growth this year in the “low double digits,” according to a presentation on its website. Operating expenses will climb in the “high single digit” range, the company forecast.

‘Relatively Bullish’

Banga said on the call he was “relatively bullish” on the U.S. economy, and described President Donald Trump’s election as a “net positive” for Mastercard, given the prospect of regulatory easing and increased infrastructure spending. A day earlier, he expressed reservations about Trump’s ban on immigration from some Middle Eastern nations, saying the executive order has caused “a fracture in our society.”

American Express Co., the biggest U.S. credit-card issuer by purchases, said Jan. 19 that fourth-quarter profit dropped 8.2 percent to $825 million as the company spent a record amount on marketing and other incentives. Visa Inc., the world’s largest payments network, is scheduled to report fiscal first-quarter earnings on Thursday.

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