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Mastercard Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Payment network net revenue increased by 15% in Q4, driven by domestic and cross-border transaction and volume growth.
- Credit and debit growth was aided by the conversions of the previously announced Wells Fargo commercial credit and Citizens debit migrations.
- Cross-border volume increased by 20% globally in Q4, reflecting continued strong growth in both travel and non-travel-related cross-border spending.
- Net income and EPS increased by 19% and 22% respectively, driven by strong operating income growth and further aided by a discrete tax benefit recognized in Q4.
- The labor market is strong with low unemployment and continued wage growth.
- Total adjusted operating expenses were higher than anticipated, primarily due to the impact of the acquisition expenses.
- FX volatility picked up in Q4.
- Transaction growth remained flat sequentially as compared to volumes due to higher average ticket sizes in Q4.
- The company did not hedge some currencies due to the lack of liquidity in the market.
- Net revenue growth is expected to be in the low-teens range on a currency-neutral basis, excluding acquisitions.
- Net revenue is expected to grow at the high-end of the low double-digits to low-teens range on a currency-neutral basis, excluding acquisitions.
- The company expects a headwind of approximately 2 ppt from foreign exchange.
- The company expects growth to be at the low end of a low double digits range versus a year ago on a currency-neutral basis, excluding acquisitions and special items.
Q&A Highlights from Mastercard Inc Earnings Call Q4 2024
- Analyst asked about Mastercard's approach to Cap One and Discover, and how they are thinking about the model.
- Mastercard's approach to Cap One and Discover is to continue to offer a strong value proposition to their customers. They have a large and growing customer base, and they are working hard to win various portfolios. They also have a strong focus on cross-border volume, which continues to be solid. They are seeing good performance from a volume growth standpoint and cross-border at 20% for Q4. However, the 20% volume growth is due to intra-Europe growth, which is being driven by two factors: a pull forward of travel spend into the month of December and the calendarization of days. The company believes that the health of cross-border spend continues to be excellent, and they have no reason to believe that it will change going forward. They are also working to build out excellent capabilities in value-added services and solutions, which are going after a sizable and fast-growing addressable market.
- Mastercard's approach to Cap One and Discover is to continue to offer a strong value proposition to their customers. They have a large and growing customer base, and they are working hard to win various portfolios. They also have a strong focus on cross-border volume, which continues to be solid. They are seeing good performance from a volume growth standpoint and cross-border at 20% for Q4. However, the 20% volume growth is due to intra-Europe growth, which is being driven by two factors: a pull forward of travel spend into the month of December and the calendarization of days. The company believes that the health of cross-border spend continues to be excellent, and they have no reason to believe that it will change going forward. They are also working to build out excellent capabilities in value-added services and solutions, which are going after a sizable and fast-growing addressable market.
- Analyst asked about Mastercard's expectations for value-added services and solutions in 2025, and how they compare to consumer payments.
- Mastercard is not giving a forecast for value-added services and solutions in 2025, but they continue to invest in that space and build out excellent capabilities. They gave some color at Investor Day about the composition of those revenues, including payment network drivers and safety and security measures. They also mentioned that the fundamentals of the business continue to be very strong, and they closed the year strong in that area. They also mentioned that there are a few things to keep in mind when comparing 2025 expectations to 2024, including the fact that pricing is starting to ramp up in Q2 and Q3, and that significant wins from 2024 will start to lap as the year progresses. Additionally, the company is factoring in assumptions around FX volatility, which picked up in Q4, but it's hard to predict what it will look like through the end of 2025.
- Mastercard is not giving a forecast for value-added services and solutions in 2025, but they continue to invest in that space and build out excellent capabilities. They gave some color at Investor Day about the composition of those revenues, including payment network drivers and safety and security measures. They also mentioned that the fundamentals of the business continue to be very strong, and they closed the year strong in that area. They also mentioned that there are a few things to keep in mind when comparing 2025 expectations to 2024, including the fact that pricing is starting to ramp up in Q2 and Q3, and that significant wins from 2024 will start to lap as the year progresses. Additionally, the company is factoring in assumptions around FX volatility, which picked up in Q4, but it's hard to predict what it will look like through the end of 2025.
- Analyst asked about Mastercard's positioning for the growth in the crypto ecosystem.
- Michael E. Miebach, CEO of Mastercard, stated that the company has been active in the crypto space for some time and has been successful in providing crypto on-ramp and off-ramp solutions. He also mentioned that the company has partnered with Crypto.com, which is an exciting addition to their partnerships. He noted that the potential of the underlying technology and the cross-border use cases has been talked about for years, and Mastercard has started to move beyond the proof-of-concept stage. He stated that the company has real transactions that took place, such as the first one in Hong Kong last year, and they are in the business of stablecoin transactions. He also mentioned that there are real-time payments initiatives to potentially connect those systems, and that Mastercard is in 12 of large RTP markets where they have a presence. He concluded by saying that the company is leaning in and pushing tokenization, and that Europe is a market that's ripe for the doing away with one-time passwords and keying in card numbers.
- Michael E. Miebach, CEO of Mastercard, stated that the company has been active in the crypto space for some time and has been successful in providing crypto on-ramp and off-ramp solutions. He also mentioned that the company has partnered with Crypto.com, which is an exciting addition to their partnerships. He noted that the potential of the underlying technology and the cross-border use cases has been talked about for years, and Mastercard has started to move beyond the proof-of-concept stage. He stated that the company has real transactions that took place, such as the first one in Hong Kong last year, and they are in the business of stablecoin transactions. He also mentioned that there are real-time payments initiatives to potentially connect those systems, and that Mastercard is in 12 of large RTP markets where they have a presence. He concluded by saying that the company is leaning in and pushing tokenization, and that Europe is a market that's ripe for the doing away with one-time passwords and keying in card numbers.
- Analyst asked about Mastercard's goal of pushing tokenization in Europe and why Europe was chosen as the region to set this goal up for Mastercard.
- Michael E. Miebach, CEO of Mastercard, stated that the company has chosen Europe as the region to set this goal up for Mastercard because of the evolution of the European payment markets, which have seen regulations that focus on security, consumer experience, and a fair and level-playing field. He noted that the company wants to prove that an initiative works in Europe, and that they have the relevant share position and partnerships across the board. He also mentioned that tokens are at the core of Mastercard's strategy, and that the company has deployed biometric technology widely in Europe. He stated that the wider use of tokens sets the company up for exactly that, and that they will be looking at other use cases and see what that can do for their company overall. He concluded by stating that this is not just about Europe, but a global goal, and that the company will go region-by-region whenever they feel is the right time.
- Michael E. Miebach, CEO of Mastercard, stated that the company has chosen Europe as the region to set this goal up for Mastercard because of the evolution of the European payment markets, which have seen regulations that focus on security, consumer experience, and a fair and level-playing field. He noted that the company wants to prove that an initiative works in Europe, and that they have the relevant share position and partnerships across the board. He also mentioned that tokens are at the core of Mastercard's strategy, and that the company has deployed biometric technology widely in Europe. He stated that the wider use of tokens sets the company up for exactly that, and that they will be looking at other use cases and see what that can do for their company overall. He concluded by stating that this is not just about Europe, but a global goal, and that the company will go region-by-region whenever they feel is the right time.
- Analyst asked about the potential impacts of the new political environment on Mastercard's business, specifically regarding the possibility of widespread tariffs being applied.
- Michael E. Miebach, President and CEO of Mastercard, responded by stating that the company is not in the import-export industry and would not be directly affected by tariffs. However, the company is monitoring the situation closely and will continue to engage with key partners, such as the US administration, to ensure a positive business outlook. He also noted that the company is focused on advancing digital trade policies and that digital trade is an important topic for the company.
- Michael E. Miebach, President and CEO of Mastercard, responded by stating that the company is not in the import-export industry and would not be directly affected by tariffs. However, the company is monitoring the situation closely and will continue to engage with key partners, such as the US administration, to ensure a positive business outlook. He also noted that the company is focused on advancing digital trade policies and that digital trade is an important topic for the company.
- Analyst asked about the impact of the transaction line on Mastercard's transaction yield.
- Sachin J. Mehra, CFO of Mastercard, explained that the transaction line is part of the company's transaction processing assessments and that volatility in this line item can impact yields positively or negatively.
- Sachin J. Mehra, CFO of Mastercard, explained that the transaction line is part of the company's transaction processing assessments and that volatility in this line item can impact yields positively or negatively.
- Analyst asked about the level of renewal activity and the direction of R&I growth in 2025.
- The company expects renewal activity to be similar to previous years, with no unusual lumpiness. They are focused on winning the right kinds of portfolios, and their teams are engaged with customers to sell on the basis of the value they deliver. From an overall rebates and incentives standpoint, the company expects them to be roughly similar to Q4, but the full-year outlook is subject to deal flow and activity. The company is focused on driving an accretion in their net revenue yield, which is their main priority.
- The company expects renewal activity to be similar to previous years, with no unusual lumpiness. They are focused on winning the right kinds of portfolios, and their teams are engaged with customers to sell on the basis of the value they deliver. From an overall rebates and incentives standpoint, the company expects them to be roughly similar to Q4, but the full-year outlook is subject to deal flow and activity. The company is focused on driving an accretion in their net revenue yield, which is their main priority.
- Analyst asked about the approach and mechanics of the company's hedging strategy, including its net basis and basket of currencies.
- The company's hedging strategy is focused on driving the right economic outcome for the company. They hedge cash flow exposures, such as transaction and monetary assets and liabilities, based on forecasts, and do not hedge translation exposures, which are not expected to result in cash movements. The company exercises materiality thresholds on small currency exposures and does not hedge currencies that are not hedgeable due to lack of liquidity in the market. The company's geographically diversified business allows them to take advantage of fast-growing markets around the world, where they find the biggest secular opportunity.
- The company's hedging strategy is focused on driving the right economic outcome for the company. They hedge cash flow exposures, such as transaction and monetary assets and liabilities, based on forecasts, and do not hedge translation exposures, which are not expected to result in cash movements. The company exercises materiality thresholds on small currency exposures and does not hedge currencies that are not hedgeable due to lack of liquidity in the market. The company's geographically diversified business allows them to take advantage of fast-growing markets around the world, where they find the biggest secular opportunity.
- Analyst asked about the impact of local schemes being folded up into the European payments initiative, including in the home market of Germany, on the competitive landscape.
- Michael Miebach, CEO of Mastercard, explained that the company has been successful in competing with domestic competitors and partners in Europe, and that the push for local payment solutions is driven by a desire for sovereignty and control. However, he believes that the consumer is the deciding factor, and that it will be difficult for new apps to convince merchants and consumers to change. He also noted that the company has seen success in partnerships with domestic schemes in other countries, and that they will continue to compete and invest in their proposition across channels.
- Michael Miebach, CEO of Mastercard, explained that the company has been successful in competing with domestic competitors and partners in Europe, and that the push for local payment solutions is driven by a desire for sovereignty and control. However, he believes that the consumer is the deciding factor, and that it will be difficult for new apps to convince merchants and consumers to change. He also noted that the company has seen success in partnerships with domestic schemes in other countries, and that they will continue to compete and invest in their proposition across channels.
- Analyst asked about the acceleration in the fourth quarter and the sustained one in the United States year-to-date, and whether it is driven by share gains.
- Sachin Mehra, CFO of Mastercard, explained that the metrics for the fourth quarter compared to the third quarter show an acceleration, but that it is not driven by share gains. He attributed the acceleration to the underlying strength of the consumer and the merchant spend, as well as a little bit of lift from crypto and the nature of the travel spend pull forward. He also noted that the company has won the right portfolios and those portfolios have grown at a good pace, which has helped to drive the metrics.
- Sachin Mehra, CFO of Mastercard, explained that the metrics for the fourth quarter compared to the third quarter show an acceleration, but that it is not driven by share gains. He attributed the acceleration to the underlying strength of the consumer and the merchant spend, as well as a little bit of lift from crypto and the nature of the travel spend pull forward. He also noted that the company has won the right portfolios and those portfolios have grown at a good pace, which has helped to drive the metrics.
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