MasterCard’s Expense Management Results in High Margins



Expense management

MasterCard’s (MA) rebates and incentives have grown at a faster pace than its revenue in recent quarters, mainly due to more retail clientele and increased competition. The company’s rebates and discounts rose 21.0% to $1.4 billion in 4Q16 on a nominal basis. The growth was mainly due to renewals of existing deals and continued spending.

In 1Q17, rebates and discounts are expected to rise 20.0%–22.0% on the back of higher volumes and partnerships.


MasterCard’s major spending initiatives have been to add partnerships rather than spend on direct marketing efforts. The company’s advertising and marketing expenses fell 3% to $308.0 million on a year-over-year basis. Its general and administrative expenses, including personnel, network and processing, and professional fees, fell 2.0% to $983.0 million.

MasterCard saw total revenues of $10.8 billion in 2016. Its peers in the industry posted the following revenues in 2016:

  • American Express (AXP): $32.6 billion
  • Discover Financial Services (DFS): $7.6 billion
  • Visa (V): $15.0 billion

Together, these companies account for 2.9% of the iShares Russell 1000 Growth (IWF).

Improving margins

MasterCard has managed high operating margins of 45.0%–50.0% in recent quarters. The margins were backed by strong international and diversified growth and lower expenses, partially offset by increased rebates and a strong US dollar. Excluding non-operating items, MasterCard posted an operating margin of 49.8% in 4Q16 compared to 44.0% in 4Q15. The company’s operating expenses fell 2.0% on a nominal basis in 4Q16.

MasterCard saw higher personnel and data processing costs compared to 4Q15. However, it saw a fall in professional fees as well as other administrative expenses, reflecting strong expense management.

Next, let’s take a look at MasterCard’s valuations.

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