Mastercard: bad weather and election volatility may weigh on spending

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Krisztian Bocsi/Bloomberg

The banking and financial sectors are fighting against layoffs and lingering inflation, but Mastercard contends the impact on its own business thus far has been muted — despite the recent impacts of a cold snap in the U.S. and the expected disruption of the 2024 election season.

"The [overall] labor market remains strong, there's low unemployment and resilient wages," said Michael Miebach, CEO of Mastercard, during Thursday morning's earnings call. "While inflation is moderating, there are isolated cases in which goods and services remain elevated." 

For the quarter that ended December 31, Mastercard reported net revenue of $6.5 billion, up 11% from about $5.85 billion a year earlier. It reported a profit of $3.18 per share, up 18% from about $2.70 a year earlier. That beat the average estimate of $3.08 peer share from Zacks Investment Research. 

"We delivered strong earnings and revenue growth for the full year 2023, driven by healthy consumer spending, cross-border volume growth of 24%, and the solid execution of our strategy," Miebach said. 

But the pace of payments growth is slowing in the U.S. Switched volume, which refers to authorization, clearing and settlement, grew 11% during the fourth quarter. That's down from 14% in the third quarter and higher than 10% during January 2024. 

Similar to Visa, which attributed slower January sales partly to the weather in the U.S., Mastercard said the slower January numbers stemmed from a series of severe winter storms. Payment performance outside during periods of calmer weather were in line with December's performance. An analyst note from Jeffries also said the January dip for Mastercard was likely due to inclement weather. 

Visa last week reported a decline of about 80 basis in U.S. payment volume growth, as well as a decline in payments in January, an exception to what were overall strong earnings. Visa attributed the declines to inherently temporary factors such as a less favorable mix of weekends and weekdays for shopping, in addition to the poor weather in January. American Express reported strong earnings, but noted flat payment volume from small businesses and an increase in loss provisions. Amex said macroeconomic stress has not substantially impacted its business, and affirmed its growth outlook for 2024. 

Discover's earnings saw a charge-off rate of 4.1% at the end of the fourth quarter, up from 2.1% over 2022 and 59 basis points from the prior quarter. Discover also raised its loan-loss provision from $900 million to $1.9 billion. 

While U.S. electronic payments growth continues to outpace GDP and population growth, domestic electronic-payments growth will gradually slow, even with a range of new use cases being developed, according to Eric Grover, a principal at Intrepid Ventures. "Global electronic payments growth should remain robust for decades to come, barring major war or economic calamity," Grover said.  

Mastercard also said tougher comparisons weighed on payment growth statistics. The spikes in payment growth were higher late in 2022 and early 2023, making it harder for current growth rates to match the recent past. Mastercard is still pursuing "secular" opportunities in the U.S., including expanding open-loop transit payments, open banking and real-time payment processing, according to Miebach. 

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"There are also geopolitical concerns in several markets," Miebach said of factors that could impact payment growth in the year ahead.

Mastercard is monitoring the potential impact of the dozens of 2024 elections that may be contested or otherwise volatile, both in the U.S. and globally. Analysts asked Miebach about the impact of isolationism, or leaders that are less prone to support international business. Mastercard, for example, reported 18% growth in cross-border payment volume during the quarter. 

Miebach did not directly address the impact of isolationism on international payments, but noted that the card network is monitoring elections and is doing scenario planning based on different results or unexpected news surrounding elections.  

"Elections are no different from monitoring fiscal moves by central banks," Miebach said, adding that Mastercard is performing scenario planning and will form a response strategy in the event an election causes an unforeseen interruption in payments or an economic impact. 

"The past three years have had no shortage of such challenges and we responded quickly," Miebach said. 

Mastercard additionally plans to support payments in China in the near future, Miebach said. Mastercard has been trying to establish a domestic payment market in China for years, but has faced quickly changing regulations from the Chinese government. China appears to be more open than in the past; China's regulators have approved Mastercard's local joint venture to process payments. 

"We're thrilled about China. It's a massive opportunity," Miebach said, adding that use cases will include payments for Chinese consumers both inside China and when traveling. 

For the full 2023 year, Mastercard reported net revenue of $25.1 billion, up 13% from about $22.2 billion the prior year. Mastercard projected growth in the low double digits for the first quarter. For the full year of 2024, Mastercard projected growth at the high end of low double digit rate.

"The full-year outlook … is in line with Wall Street projections, implying 17% earnings per share growth," Jeffries analysts said.