May 1, 2013 7:42 pm

MasterCard: spend, spend, spend

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Growth is tied to a healthy economy and buoyant consumer

Well, you can’t have everything. MasterCard is benefiting from an enviable trend: the worldwide shift to paying with plastic instead of paper. But credit and debit cards are spending tools, so the company’s fortunes are also tied to a healthy economy and buoyant consumer. On that front, things are much less enviable.

The payment processor has set a goal of 11 per cent average annual revenue growth, and 20 per cent earnings per share growth, from 2013 through 2015 – but warned that the uncertain global economy meant it might not get there right away. In the first quarter, reported on Wednesday, MasterCard produced top-line growth of 8 per cent. That is a rate that many companies would covet but it was slightly below analysts’ expectations for MasterCard. In the US, where the company earns about 40 per cent of its revenue, consumer spending was hit by higher payroll taxes, delays in tax refunds and bad weather. In March US retail sales, excluding cars, rose 2 per cent year on year, the weakest increase since late 2009. A year ago the growth rate was more than 6 per cent. And the US is, in theory, the strongest of the developed economies.

Still, earnings per share rose 16 per cent to $6.23, ahead of Wall Street targets. A lower tax rate and operating expense leverage helped, but carefully managed earnings were not what investors were looking for. The shares fell 3 per cent.

MasterCard’s stock is up more than 100 per cent in the past three years and 10 per cent in the year to date. At $540, the shares trade at about 20 times forward earnings. The cash-to-cards trend remains intact – though MasterCard faces new competitors, particularly in mobile payments. The question is how big a premium should be paid for a spending-driven company in a time of sluggish spending.

Email the Lex team in confidence at lex@ft.com

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