Investors Displeased By MasterCard’s Less-Than-Masterful Q4

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Thanks to a sizable increase in costs, MasterCard (NYSE:MA) — the second-largest U.S. payment network after Visa (NYSE:V) — failed to beat Wall Street’s earnings expectation. After the company released its fourth-quarter on Monday before the markets opened, investors, who bid shares of MasterCard up 72.95 percent in 2013 — reacted to the bottom line miss by pushing shares down as much as 5.6 percent percent to $75.28. Shares opened at $75.51 and continued dropping in early trading Friday morning.

Wall Street analysts had predicted MasterCard to report earnings per share of 60 cents on $2.14 billion in revenue. However, operating expenses, excluding a one-time charge related to settling merchant litigation, rose 11 percent to $1.1 billion from $966 million a year earlier. Those expenses, which were driven by higher rebates and a 23 percent increase in payments to banking and retail clients signing new and renewal agreements, offset higher cardholder spending and crippled the company’s fourth-quarter results.

For the three month period, the Purchase, New York-based company reported that net income rose 3 percent to $623 million, or 52 cents per share, from $605, or 49 cents per share. Meanwhile, revenue climbed 12 percent to $2.13 billion, missing expectations slightly. The gain was propelled by a 13 percent jump  in processed transactions. In total, cardholders made $1.1 trillion in purchases on MasterCard cards, a 14 percent jump on a local-currency basis from the fourth-quarter of 2012. These results were adjusted for the 10-for-1 stock split MasterCard announced last year.

“The notorious lumpy rebate line was even higher-than-expected,” Jefferies Group analyst Jason Kupferberg wrote in a note to clients seen by Bloomberg. Still, the firm’s “initial look shows no reason for significant concern. We view the pullback as an especially good buying opportunity.”

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