Mastercard stock hits all-time high on Q4 earnings strength

Key points

• Mastercard stock hit an all-time high on Thursday.

• The catalyst was Q4 earnings, which beat estimates.

• Is Mastercard stock a buy?

Is Mastercard stock a buy?

Mastercard (NYSE: MA) stock was rising on Thursday after the credit card and payment processor reported better-than-expected fourth quarter earnings.

The second largest payment processor generated revenue of $7.5 billion in the quarter, which was 14% higher than the same quarter a year ago. This exceeded analysts’ estimates of $7.4 billion.

Net income rose 20% in Q4 to $3.3 billion, while earnings jumped 23% to $3.64 per share. The adjusted earnings were $3.82 per share, which topped estimates of $3.70.

Mastercard stock climbed about 5% to $576 per share shortly after the opening bell and settled at roughly $572 per share – a 4% increase. That is an all-time high for the stock.

Mastercard stock has risen 9% year-to-date and 28% over the past 12 months.

High operating margin

Mastercard has always been an extremely efficient company, mainly due to its duopoly and dominance in the credit card space, and its business model. It makes most of its money on swipe fees when consumers buy things on its network. It is not a lender, so there’s no credit risk, and it has relatively little physical overhead compared to banks and other financial firms.

So, its margins are exceedingly high. In the fourth quarter, for example, it had an operating margin of 52.6%, up from 51.5% a year ago. That means for every dollar of sales, it makes 52.6% in profit after subtracting expenses. Most companies are happy to be in the 20% range.

For the full year, the operating margin was even higher at 55.3%, which was down slightly from 55.8% in 2023.

What this means is that Mastercard has tons of cash on hand to reinvest in the business. It has been doing that regularly to improve its payment network, stay ahead of trends, like buy now, pay later, and invest in new businesses.

In the fourth quarter, Mastercard closed on a deal to buy cybersecurity firm Recorded Future, which should help it improve and better secure its network.

Diversified revenue streams

The company has also bolstered its value-added services and solutions arm, which provides consulting, data and analytics, and marketing services for institutions. This segment has been growing rapidly, posting a 17% year-over-year increase in revenue in the quarter to $3.1 billion.

That was faster growth than the payments business, which saw revenue jump 13% to $4.4 billion. Payments segment revenue was boosted by a 12% increase in gross dollar volume (GDV) spent on its network to $2.6 trillion, a 20% jump in cross-border volume growth, and an 11% increase in switched transactions growth. Also, the number of Mastercard cards on the network rose 6% to $3.5 billion.

“Our diverse capabilities in payments and services and solutions – including the acquisition of Recorded Future this quarter – set us apart and position us well for long term growth as we outlined at our Investor Day,” Michael Miebach, Mastercard CEO, said. “That value is seen in the continued momentum of our new and expanded wins.”

Is Mastercard a buy?

Investors were pleased with Mastercard’s outlook for 2025, as it calls for low-double-digit revenue growth in both Q1 and for fiscal 2025. Both are ahead of estimates. So far in January, through January 28, spending is roughly on par with Q4 percentages.

The payment processor scored recent price target upgrades from Piper Sandler, TD Cowen, B of A Securities, and Barclays. Piper Sandler raised its price target by $16 to $591 per share while TD Cowen bumped it up $32 to $599 per share, citing a robust macroeconomic environment. These targets would represent gains of 3% to 5% for Mastercard stock.

Mastercard’s valuation is a bit elevated with a P/E of $41 and a forward P/E of 33. It has generally been a sturdy all-weather stock, but with its high valuation and economic uncertainty ahead, one shouldn’t expect big gains out of Mastercard in the near term.

One thing to watch is the pending merger of Capital One and Discover for its potential impact in this space.