MasterCard (MA) has significant and diversified global operations, generating around 60% of its revenues from outside the US. Fluctuations in the currency exchange rates significantly impact the company’s revenues and net income. Only the US generates more than 10% of MasterCard’s total revenues.
The strong dollar’s impact
When most currencies fall against the US dollar, MasterCard’s revenues take a hit despite its diversified geographies. The revenues in local currencies translate into smaller revenues in US dollars.
The above graph shows the impact of a strong dollar on MasterCard’s total volume growth. The volume growth drives the company’s domestic assessments and cross-border volume fees. The growth in the US dollar significantly diverged from the growth in local currency in the most recent quarters. While the volume growth in local currency was 12.1% in 1Q15, it translated into a volume growth of just 1.8% in US dollars.
Impact on revenues and net income
MasterCard’s net revenue growth for the first quarter of 2015 was 3%, and its growth adjusted for currency was 8%. Similarly, its net income increased 17%, or 24% when adjusted for currency.
MasterCard attempts to manage its foreign currency exposures through forward contracts and derivatives. Plus, its major competitor Visa (V) faces the impact of a strong US dollar. You can read more about this in Visa Offers Consistent Revenue Growth.
American Express (AXP) and Discover Financial (DFS) are more focused on the US market, reducing the impact of a stronger dollar on these companies. MasterCard forms ~2.2% of the Technology Select Sector SPDR Fund (XLK).