Can New Products Help MasterCard’s Q4 Earnings?

Photo Credit:Håkan Dahlström

MasterCard Incorporated (MA) Information Technology – IT Services | Reports January 29, Before Market Open

Global payment network, MasterCard, is scheduled to report Q4 2015 earnings January 29th before the opening bell. After beating estimates in 5 of the last 6 quarters, MasterCard is expected to underwhelm investors thanks to a strong U.S. dollar and heavy expenses from updating payment technologies. The Estimize consensus calls for EPS of $0.72 and revenue of $2.548 billion, slightly higher than Wall Street’s estimates. Compared to Q4 2014, this represents a projected YoY growth in EPS and revenue of 4% and 6%, respectively.  For years, MasterCard held a competitive advantage, leveraging international growth to take a leadership role in payment services. However, currency headwinds on top of increasing competition from online payment processors, like PayPal, have forced MasterCard to defend its market share. 

This past quarter MasterCard’s earnings came under threat as the dollar grew stronger and increasing investments were made in expanding its payment technologies. In a given year, MasterCard derives about 60% of its revenue from international operations. This exposure to global markets has caused earnings to contract due to a strong dollar. In fact, it is estimated that the dollar has contributed to a 10% decline in MasterCard’s revenue. Moreover, a slowdown in the global economy has had an adverse effect on consumer spending overseas. MasterCard also struggles with competitive threats from Visa and PayPal. So far, PayPal has done a good job of taking away market share from the traditional credit industry. Consequently, MasterCard has made heavy investments into payment technology and recently launched its payment app, MasterPass. MasterCard hopes its new mobile payment app will increase transaction volume and frequency. Notable partnerships with JetBlue and Coin should also facilitate payment processing through all forms of technology. As long as MasterCard can maintain solid growth and new product rollouts, a bounce back is inevitable.