MasterCard (NYSE:MA - News) showed Thursday just how resilient it is to credit woes and the general economic malaise in the U.S.
fourth-quarter profit surged 187% from a year ago to 89 cents a share. That excludes $1.37 a share on sales of shares of newly public Brazilian credit firm Redecard.
Earnings beat Wall Street estimates by 17 cents, sending shares 9.5% higher to 207.
Revenue rose 28% to $1.07 billion, the best gain in years.
The rise was driven by strong global growth in transactions and the total amount charged by customers. Transactions jumped 17.2% to 5.2 billion in the fourth quarter.
High-margin cross-border volume, which was up 27.7%, also was a big factor in kicking up the top and bottom lines.
Currency fluctuations accounted for 4.7% of the growth in net revenue.
Developing Credit Boom
In many developing stretches of the world, consumers continue to switch from cash to cards at dizzying rates.
About half of MasterCard's revenue comes from outside the U.S., including fast-growing regions in Asia and Latin America.
What's more, about 75% of MasterCard's revenue is immune from credit risk altogether: Its pure transaction business gives it an advantage over card-issuing bank customers and card companies that lend to customers, such as American Express (NYSE:AXP - News).
MasterCard often is unfairly compared with rivals that are vulnerable to credit woes, analysts say.
When AmEx warned of big credit woes on Jan. 10, MasterCard shares fell 9% the next day.
"If you understand what they do, it doesn't make any sense," said Anurag Rana, an analyst at KeyBanc Capital Markets.
On Thursday, MasterCard's strong results helped lift shares of other card companies, including AmEx, which rose nearly 4% even though it had earlier reported a weak quarter.
"It's phenomenal growth, even in the U.S.," Rana said of MasterCard's results.
About 25% of MasterCard's revenue is based on how much card users actually spend, so it is more sensitive to consumer spending trends. But even that category grew 15.2% worldwide on a local currency basis, to $634 billion.
U.S. Growth Solid
The U.S. lagged somewhat, but still enjoyed 10% dollar volume growth. That was faster than in the previous two quarters.
In the fourth quarter, Americans shifted their spending from discretionary items such as jewelry and home furnishings to "everyday" purchases like gas and groceries, CEO Robert Selander said in a conference call Thursday.
"This movement to everyday purchases aligns well with where MasterCard is broadly positioned in consumers' wallets," he said.
Overseas growth was much higher. Dollar volumes on a local currency basis were up 34% in South Asia, the Middle East and Africa. Latin America was up 22% and Asia-Pacific 19%. Europe, a big source of cross-border volume, showed an 18.4% increase.
"There's a lot of fear that a slowdown in the U.S. will drag down (MasterCard's) earnings," said Bear Stearns analyst David Hochstim. "The reality is, this is a transaction company with global operations. Business is growing faster outside the U.S., and the U.S. business is growing nicely."
Healthy Outlook
Selander said during Thursday's conference call that MasterCard expects slower revenue growth in 2008, "but still at double-digit rates."
The key is controlling operating costs, Hochstim said, "and they've shown they are able to do that."
Selander said MasterCard will add staff slowly compared with last year's robust hiring.
MasterCard also would likely give fewer rebates and incentives to "volume discount" customers if card spending slows, Hochstim said.
"If there's a global slowdown," he said, "yes, their business would not do as well. But it would still do better than a lot of other companies."
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