Mastercard earnings preview: What to expect from credit card firm’s Q2 report

Mastercard (NYSE: MA) will be publishing financial results for the June-quarter Tuesday before the opening bell. The continuing e-commerce growth amid solid retail spending, combined with the positive economic momentum, is expected to drive growth for the credit card firm. Also, the upbeat labor market and wage growth have boosted consumer sentiment, which bodes well for Mastercard.

Growth Drivers

Analysts have an average earnings estimate of $1.82 per share for the second quarter, representing a 10% annual growth. They are looking for an 11% increase in revenues to $4.08 billion. Transaction volumes have likely increased in all the key markets during the quarter. There has been a notable rise in non-transaction processing revenues also, which account for about 15% of the total revenue.

Meanwhile, margins of the Harrison, New York-based payment processor could take a beating as it continues to offer heavy incentives. The management had hinted that unfavorable foreign exchange rates will likely weigh down on the top-line in the to-be-reported quarter. In Asia, gross dollar volume growth might be affected by the softness in spending due to trade-related uncertainties.

Related: MasterCard Q1 2019 Earnings Call Transcript

Another headwind is the spike in marketing costs and the resultant increase in operating expenses. Also, the recent acquisition of payments firm Transfast and the earlier buyout of fintech startup Vyze could have a dilutive effect on earnings this time.

Long-term Prospects

The long-term growth prospects of Mastercard look bright, considering its rapid geographical expansion and the efforts to innovate by rolling out new products in partnership with industry leaders like Goldman Sachs (GS) and Apple (AAPL).

In the first quarter, Mastercard’s adjusted earnings jumped 19% to $1.78 per share, helped by a 9% increase in revenues to $3.9 billion. The top-line benefitted from an uptick in switched transactions.

Peer Performance

Earlier this month, Visa (V) reported double-digit growth for third-quarter earnings and revenues to $1.37 per share and $5.84 billion respectively, which also surpassed analysts’ estimates. However, the stock suffered as the management slashed its full-year outlook.

Also see: Visa Q3 2019 Earnings Conference Call Transcript

Mastercard stock made steady gains so far this year and is currently trading at a record high of around $280. It has moved up 39% in the past twelve months, outperforming Visa and the S&P 500 index.

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