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MasterCard Earnings Charge Ahead as Global Spending Soars

By Dan Caplinger – Oct 30, 2014 at 9:40AM

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Worries about a global economic slowdown didn't hold back the card giant's third-quarter results.

Source: MasterCard

Coming into this morning's report, MasterCard (MA 0.94%) enjoyed a consistent track record of growth, but investors weren't certain whether the card-network giant would be able to sustain the pace of its financial improvements. Given some of the challenges to the global economy, MasterCard's greater reliance on its international segment than rival Visa (V 0.30%) had some believing that MasterCard would face tougher conditions and see slower growth. Yet when the company actually released its quarterly results, MasterCard once again proved that the reality is far better than some of the pessimistic projections that outside analysts have portrayed -- at least as far as the card business is concerned. Let's take a closer look at MasterCard's third-quarter financial results for insight on how the transaction-processor did.

How MasterCard keeps finding global growth
Mastercard's third-quarter results continued to defy the company's naysayers, as strong figures on the top and bottom lines showed no signs of slowing. Revenue climbed 13% to $2.5 billion, with currency fluctuations having only a marginal impact on sales. MasterCard pointed to strong figures supporting its revenue growth, including a 12% jump in transaction dollar volume to $1.2 trillion and 10% growth in transaction counts to 11 billion. In particular, cross-border transaction volume climbed by 15%, showing the continued vitality of the global economy and MasterCard's role in facilitating international money movement. Looking specifically at purchases, MasterCard saw 11% higher volume, with $843 billion in purchases using its 2.1 billion branded cards.

Source: MasterCard

Turning to the bottom line, net income rose an even sharper 15% to $1.02 billion. Thanks to a falling share count stemming from MasterCard's stock buyback program, earnings per share rose at an even greater rate of 19%, with the quarter's $0.87 coming in almost a dime per share ahead of what investors had expected to see. Despite rising operating expenses that offset some of the revenue gains, MasterCard pointed to investments in strategic initiatives as driving most of the spending growth, and it hopes that those initiatives will pay off with higher profits down the road.

MasterCard has a reputation for being more globally oriented than Visa, and looking at its geographical segments, MasterCard's results support that claim. U.S. growth in gross dollar volume came in at 7.5%, with purchase volume climbing 8.2%. But the domestic side of MasterCard's business makes up just 30% of its gross dollar volume and about a third of its purchase volume, and the international side of the business saw even faster growth. Even with slightly adverse currency conditions, gross dollar volume internationally rose at an 11.9% pace, with purchase volumes rising by 12.8% across all of its credit, charge, and debit card programs.

Source: MasterCard

Perhaps more surprising was the consistency of MasterCard's international growth across most of its global regions. The Asia-Pacific and Middle East and Africa segment saw the largest growth in gross dollar volumes at 18.6%, but Latin America enjoyed the best purchase-volume growth in local-currency terms, eclipsing the 20% mark. Meanwhile, even the struggling European economy managed to support strong growth levels, remaining MasterCard's largest contributor to its total gross dollar volume even as many worry about ongoing recessionary conditions for the eurozone.

The next step for MasterCard
Despite its success, MasterCard hasn't let up its guard. New innovations like Apple's (AAPL 0.79%) Apple Pay program represent only the latest entrants into the fast-growing mobile-payments space, and MasterCard has been wise to assert its strength by participating with Apple in facilitating the program's rollout. Moreover, although geopolitical tension has let up somewhat, the threat of problems in Russia could take a bigger bite out of MasterCard's international business than some of its rivals.

Yet in many ways, MasterCard's success has come from a simple source: pricing power. MasterCard expects to boost the amount it charges its banks at the beginning of 2015, which could bring further revenue and profit growth next year. With Visa also having reported favorable results earlier this week, it's clear that the major card networks have executed well in maintaining their grip on the industry despite the advance of technology into the payment-processing space.

MasterCard will always be sensitive to changes in spending patterns throughout the global economy, and so worries about macroeconomic conditions will have a particularly noticeable impact on sentiment for the card giant. At least right now, though, MasterCard continues to fire on all cylinders, extending its global reach in an effort to catch up with and surpass Visa in the worldwide card-network market.

Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple, MasterCard, and Visa. The Motley Fool owns shares of Apple, MasterCard, and Visa. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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