Mastercard - FY24 Key Takeaways
Stock Update - FY24 Results
Mastercard delivered a strong finish to 2024 with 4Q operating and financial metrics accelerating. On a constant currency basis, quarterly gross dollar volumes rose +12%, net revenues +16% and adjusted diluted EPS +22%. Cross-border and value-added services were the standouts.
Mastercard is a great example of the power of quality compounding. Over the past 5 years, net revenue has increased at a 11% constant annual growth rate (CAGR) and EPS at a 14% CAGR. For FY25, management anticipates further momentum with net revenue growth in the low-teens and operating margin expansion. The company faces the near-term headwind of tax rates lifting from 16% to 20-21%, as explained in the previous note here. The quarter was business as usual, with the key takeaways below:
Mastercard’s services led approach continues to drive new wins and high customer retention. Customer buying decisions are increasingly moving beyond rebates and incentives to multi-faceted partnerships that can improve revenue, reduce costs and manage risks. Mastercard’s differentiated services portfolio and industry expertise positions them well and has resulted in multiple wins, including ICBA Payments and MidFlorida in US Debit. The momentum is seen below, with Mastercard outgrowing the previously dominant Visa US debit network for the past four quarters.
There is also a latent opportunity to go deeper and broader in Services, as penetration sits at only 7% of the $165b serviceable addressable market. The company is making strides here, including the recent partnership with Stripe to enhance fraud solutions for its multi-million-user base.
Acquisitions are strategically important as they bring new capabilities that strengthen the overall value proposition. The recent $2.6b acquisition of Recorded Future is an example of this, which is an AI-powered threat intelligence tool that enhances the existing cybersecurity offering. Mastercard can integrate the technology, and market it to its global customer base.
New entrants continue to partner rather than compete with established networks. As Mastercard’s network continues to grow (now at 3.5b cards, >150m acceptance locations and $7t in payment volumes), it reduces consumer friction and increases the competitive barriers to entry. What were once perceived as threats have evolved into growth opportunities, as demonstrated by recent partnerships with crypto wallets.
This is also prevalent at Visa, which has partnered in the notable launch of X Money. CEO Ryan McInerney explains the dynamic well, “I think the X partnership is a great example in what's been a kind of long list of fintech and big tech, crypto, digital wallets, social messaging apps and the like that have looked around at their options and concluded that the Visa platform, the Visa network and the Visa network of networks is kind of the best, most reliable, biggest money movement platform that's really engineered to enable their developers to quickly implement the types of solutions that they're looking to implement.”
Mastercard remains the preferred exposure in digital payments due to its market share gains, diversified business model and lower exposure to regulatory risks. The management team have proven to be more innovative, and remain focused on capturing the long-term opportunity. CEO Michael Miebach explains this well, “And then the one thing I would like to add to that is we love the fact that we have a geographically diversified business, so this comes with it. This is a fundamental differentiator for us. And many of these markets around the world are fast-growing markets where that is where we find the biggest secular opportunity. So, the FX is the last thing that I think about. I think about the growth opportunity in those markets.” Note, Mastercard trades at forward P/E of 34x, which is at the higher end of historical ranges.