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A Closer Look At Mastercard's Earnings


It is important to recognize that Mastercard is in the hot spot for financial services investors right now.

The following is the latest missive from Minyan Peter, author of such popular articles as Bank Earnings Post Mortem and The Ripple Effect of Collateralized Debt Downgrades.

A couple of quick comments on Mastercard's (MA) numbers this morning:

First, no matter how you cut it, the results were great - higher revenue, margins, result and even with a higher tax rate. They beat estimates handily.

Second, it is important to recognize that Mastercard is in the hot spot for financial services investors right now. Any money manager needing to have exposure to financial services is trying to put it in non-credit areas - processing companies like Mastercard as well as asset management firms.

I would caution, however, that the price movements in these areas have been dramatic over the past two weeks. Mastercard itself is up 25% over the past week alone, and names like Eaton Vance and T Rowe Price (TROW) have seen similar movements since mid-month. While they probably still have room to run, remember that a huge amount of money has already run to them away from the likes of Citicorp, Merrill (MER), etc.

At least to me, this represents the classic "flight to safety" trade in financial services names that comes at the top of market cycles. (If you don't believe me, go back and chart banks versus asset managers from 2000 - banks peaked early.)

Back on Mastercard, if there was one weak number in their results, it was in its U.S. figures. Charge volume growth rates fell from 10.9% for the first 9 months of the year down to 7.7% for the latest quarter. However, the drop in debit card growth was even more pronounced slowing from 22.7% year-to-date down to 12.1%. Neither is a surprise to me, and both are yet two more signs that the U.S. consumer is slowing down.

Finally, and not to take anything away from Mastercard's result, I would highlight that outside the U.S., this quarter's usage growth rates were in line (not above) the nine month figures - this suggesting a leveling off of global consumer spending growth rates.
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