Can Rising Operating Costs Hurt Mastercard (MA) Q4 Earnings?

Mastercard Incorporated MA is set to report fourth-quarter 2021 results on Jan 27, before the opening bell.

In the last reported quarter, the leading global payment solutions company reported earnings per share of $2.37, beating the Zacks Consensus Estimate by 8.7%, backed by higher consumer spending and increased gross dollar and cross-border volumes.

Mastercard beat the consensus estimate in each of the prior four quarters, with the average being 10.7%. This is depicted in the graph below:

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated Price and EPS Surprise

Mastercard Incorporated price-eps-surprise | Mastercard Incorporated Quote

Let’s see how things have shaped up prior to the fourth-quarter earnings announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for fourth-quarter earnings per share of $2.19 has witnessed two upward and downward revisions each in the past 30 days. The estimated figure suggests an increase of 33.5% from the prior-year reported number.

The consensus estimate for fourth-quarter revenues of $5.1 billion indicates a 24.6% increase from the year-ago reported figure.

Factors to Note

As the electronic payment network giant draws revenues as a set percentage of the total transaction value every time a customer’s debit/credit card is used for making payments, higher spending in the fourth quarter on its cards is likely to have resulted in more revenues in the form of transaction processing fees. Consumer spending witnessed a massive improvement in 2021 amid the easing of restrictions owing to vaccination rollout, pent-up demand, higher personal savings and bullish consumer sentiment. Evidently, retail sales have been trending higher of late and are expected to reflect on the upcoming quarterly results.

The Zacks Consensus Estimate for cash volume from all Mastercard credit, charge, debit and prepaid programs for the fourth quarter is pegged at $476 billion, indicating an increase from $426 billion a year ago. The consensus mark for gross dollar volume (representing the aggregated dollar amount of purchases made and cash disbursements obtained with MasterCard-branded cards) is pegged at $2,081 billion, signaling a rise from $1,747 billion in the year-ago period.

Mastercard is one of the most widely used cards by shoppers when making payments, both offline and online, given its global network, brand name, security, flexibility and reliability. As people make more payments via the company’s co-branded cards, MA is likely to have witnessed higher Switched transactions — which include transactions authorized, cleared and settled — during the quarter. The Zacks Consensus Estimate for Switched transactions for the December quarter indicates a rise of 24.9% year over year.

All the above-mentioned factors will likely boost Mastercard’s results for the fourth quarter, leading to significant year-over-year growth. Yet, the company is expected to have incurred high levels of cost under rebates and incentives in the last three months of 2021. This might have affected margins. Also, the company’s operating costs are expected to have significantly increased in the fourth quarter, thereby hurting the bottom line, making an earnings beat uncertain. Rising spending on advertising and marketing and higher data processing costs are likely to have played a role in the cost increase. For the fourth quarter, the company forecasted earlier that operating expenses are likely to increase at a lower double-digit rate on a currency-neutral basis, excluding acquisitions.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Mastercard this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is -0.72%. This is because the Most Accurate Estimate is currently pegged at $2.18 per share, lower than the Zacks Consensus Estimate of $2.19. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mastercard currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

While an earnings beat looks uncertain for Mastercard, here are some companies in the financial services space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Visa Inc. V has an Earnings ESP of +0.27% and a Zacks Rank of 3.

Visa is scheduled to report fourth-quarter results on Jan 27.

WEX Inc. WEX has an Earnings ESP of +1.21% and is a Zacks #3 Ranked player.

WEX intends to release fourth-quarter results soon.

American Express AXP has an Earnings ESP of +2.50% and a Zacks Rank #3.

American Express is scheduled to release quarterly earnings on Jan 25.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Mastercard Incorporated (MA): Free Stock Analysis Report
Visa Inc. (V): Free Stock Analysis Report
American Express Company (AXP): Free Stock Analysis Report
WEX Inc. (WEX): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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