Mastercard's Numbers Are a Mixed Bag. Why Its Stock Drop Is About So Much More. | MA Message Board Posts

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Msg  168 of 176  at  4/29/2021 3:51:30 PM  by


Mastercard's Numbers Are a Mixed Bag. Why Its Stock Drop Is About So Much More.

Mastercard's Numbers Are a Mixed Bag. Why Its Stock Drop Is About So Much More.

Mastercard delivered a mixed back of numbers Thursday, much like rival Visa did a day earlier, but their stocks appear to be heading down diverging paths.

Mastercard (ticker: MA) reported first-quarter results that came in ahead of Wall Street's estimates. But cross-border transactions were down 17% as international travel remains deeply depressed, and the company's initial outlook for the second quarter didn't exceed forecasts.

Mastercard shares were down 2.4% in midday trading Thursday, to $386.22.

Visa (V) also beat consensus estimates in its quarterly results, reported Wednesday, and its guidance missed some analysts' expectations. But the company's stock has moved up; it gained 1.5% Wednesday and was ahead 0.4% Thursday, to $234.33.

The differing stock reactions may reflect broader trends in card transactions and the companies' strategic focus. Visa is more domestic-oriented and debit-centric, and is benefiting from industry growth in debit transactions.

Mastercard is more internationally focused; international travel is recovering slowly in Europe and other regions due to ongoing border closures and quarantine rules. The longer it drags on, the longer it will take for Mastercard's revenues and earnings to recover.

"Cross-border travel spending continues to be in the stabilization phase where spending is restricted due to closed borders," Mastercard CEO Michael Miebach said on a call with analysts. The company's cross-border volume fees were down 26% in the quarter, year-over-year.

Investors may also be unimpressed with Mastercard's growth in purchase volumes. While total purchase volumes grew 7.4%, year over year, to $1.23 trillion, the results only matched consensus estimates, according to FactSet. Gross dollar volumes came in slightly below consensus.

Mastercard's business is rebounding overall; the card network reported revenues of $4.15 billion, up 3.6% year over year and beating consensus estimates for $4 billion, according to FactSet. Adjusted earnings per share of $1.74 came in 10% ahead of the consensus forecast for $1.58.

The company reported pretax income of $1.9 billion, missing forecasts by $9 million.

Mastercard's "switched" transaction volumes—industry terminology for purchases authorized, cleared, and settled—was up 9% globally, year over year. And its total cards in the market increased 6% to 2.8 billion.

But high-margin cross-border volume remains a source of weakness. Cross-border transaction volume was down 17% from the first quarter of 2020.

Some analysts viewed the trajectory as encouraging. April's cross-border volumes accelerated from March and were up 66% compared to a year earlier, through the first three weeks of the month.

"The surge in high-yielding cross-border volumes in April is by far the most important development," wrote Mizuho's Dan Dolev. "Travel recovering should soon add more oomph to the story in the coming quarters."

Evercore ISI analyst David Togut notes that the 17% cross-border decline was a big improvement over the 29% drop in the fourth quarter of 2020. Switched transactions in the first three weeks of April grew 58%, accelerating sharply from the 9% reported growth in the first quarter.

But Togut cut his earnings estimates; he reduced his 2021 EPS forecast by 15 cents to $8.21, reflecting Mastercard's higher-than-expected operating expenses and acquisition-related costs.

Mastercard's guidance may not have been enough to lift the stock, too. The company expects core revenue growth in the second quarter in the low to mid- 20s percentages, against a 29% total growth consensus estimate. Togut still likes the stock, maintaining an Outperform rating and $395 target.

But Piper Sandler's Christopher Donat wasn't encouraged. "While the 1Q21 beat is a clear positive," he wrote, "we think that guidance for 2Q21 revenues is not high enough to drive the stock higher."

While the cross-border recovery is showing sequential gains, he notes, the travel component was down 61% in April from pre-pandemic levels, similar to levels earlier in the year.

Donat reiterated a Neutral rating and $370 target.


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