By Saabira Chaudhuri
Credit card companies are riding a surging wave in electronic
payments and benefiting from continued growth in consumer
spending.
MasterCard Inc. reported better-than-expected quarterly results
on Thursday, sending the company's shares up 7.1% in recent
trading.
The results--which came after rival Visa Inc. also reported
strong results and delivered a better-than-expected revenue outlook
for 2015--show that card giants are benefiting from a wave of
migration away from cash and checks toward spending on credit and
debit even as consumer-spending growth remains mixed globally.
Both companies' shares enjoyed jumps that would qualify as one
of their sharpest in years if the gains hold for the rest of the
afternoon. Visa's shares rose 9.6% in recent trading.
"Cash is the real opportunity for companies like us and that's
what we're focused on," said MasterCard Chief Executive Ajay Banga
on a conference call with analysts.
MasterCard reported a profit of $1.02 billion, or 87 cents a
share, up from $879 million, or 73 cents a share, a year earlier.
Revenue rose 13% to $2.5 billion. Analysts polled by Thomson
Reuters had projected 78 cents a share in earnings and $2.45
billion in revenue.
"Personal consumption expenditure is still growing in the world
despite the very low rate environment," said Chief Financial
Officer Martina Hund-Mejean in an interview. Looking to 2015, Ms.
Hund-Mejean said she expects "more of the same, hopefully a little
better."
The strong results by both MasterCard and Visa helped allay
investor concerns that a weak macroeconomic outlook in Europe and
Latin America could stymie growth.
Consumer spending in the third quarter showed "mixed trends in
the U.S.," said Mr. Banga, noting that while third quarter retail
sales growth was stronger than second quarter levels, some sectors
saw slowdowns in September.
Europe's consumer spending growth slowed in the third quarter as
compared with the second as consumer confidence and economic
sentiment were slightly down. In Latin America, retail spending
growth was also lower in the third quarter than in the second.
MasterCard affirmed its outlook for the rest of the year, while
Visa on Wednesday evening said it expects 2015 revenue growth on a
constant dollar basis of low double digits, which is stronger than
the 10% expected by analysts.
"Despite a lackluster growth environment the results gave
investors a renewed sense of confidence in their business models,"
said Nomura Securities analyst Bill Carcache. The two companies
delivered "very strong top line results and continued very strong
performance in controlling expense growth," he added.
The rise in shares is also "a bit of a relief rally", said
Keefe, Bruyette & Woods analyst Sanjay Sakhrani, noting that
both companies' shares were down year-to-date before the latest
earnings reports.
MasterCard said its purchase volume rose 11% on a local currency
basis to $843 billion. Cross-border volume rose 15%, while
processed transactions jumped 10% to 11 billion.
MasterCard's total operating expenses climbed 12% to $1.08
billion.
Earnings at Visa and MasterCard will likely be helped by a
continued a migration away from cash, and higher consumer spending,
predicted analysts at Nomura. They expect cash and checks to
decline to 22% of consumer spending in coming years from 45%.
MasterCard has been working on expanding the use of so-called
"contactless technology," which allows customers to wave their
cards or phones in front of devices that complete transactions,
without swiping. Mr. Banga said more than half of all face to face
card transactions under $100 are now contactless.
MasterCard, along with Visa and others, has also joined with
Apple Inc. on its Apple Pay mobile payments platform. "The recent
launch of Apple Pay will only help with the conversions of the
physical and digital worlds," said Mr. Banga, adding that in,
addition to Apple Pay, MasterCard is also working on a variety of
other mobile payments strategies.
"When people don't have to fumble for their wallet and card but
can just pay with their cellphones, they will be using that mode of
payment a heck of a lot more," said Ms. Hund-Mejean. "Going
contactless will be a huge driver."
The company recently expanded its contactless payments
technology to users of London's underground, a move than translated
into one million journeys being paid for in this manner in the
first two weeks.
Mr. Banga offered a cautious view on China's Wednesday
announcement that qualified domestic and foreign firms can apply to
set up bank card-clearing operations.
"We don't know what it will take to become a qualifying
institution, nor do we know what the broader regulatory framework
will look like. And of course there's no indication of timing," he
said.
Mr. Banga called the move "the first of many steps" even while
saying he was pleased by the announcement.
Michael Calia contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com