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MasterCard Shares Plunge on Loss

Laurie Kulikowski

MasterCard (MA Quote) plummeted as much as 12% Thursday after the company posted a huge quarterly loss, despite strong gains from its international business, following its settlement of antitrust litigation with American Express (AXP Quote).

Shares recouped slightly, though, and were recently down $21.64, or 8%, to $249.09.

In the three months ended June 30, the Purchase, N.Y.-based electronic-payments company posted a loss of $747 million, or $5.74 a share, which includes a $1 billion after-tax charge related to its settlement. MasterCard announced that it had reached an agreement with American Express last month.

Excluding the special item, MasterCard made $276 million, or $2.11 a share. In the year-earlier period, MasterCard earned $252 million, or $1.86 a share. Net revenue rose 25% to $1.2 billion, the company said.

Analysts estimated that the company would make $2.02 a share on $1.21 billion of revenue.

"We are pleased that we have been able to continue to deliver solid financial results in the current economic climate," CEO and President Robert Selander said in a statement. "Businesses, consumers and governments around the world are demonstrating a growing preference for electronic payments, and our cross-border volumes remain healthy as cardholders come to rely on electronic payments and the ease, security and convenience they provide. Additionally, more than 50% of our revenue is generated outside the U.S., which helps to moderate the impact of an economic downturn in one particular region."

Purchase volume worldwide rose 14% to $493 billion in the quarter, MasterCard said. Transaction volume rose 13.6% to 5.2 billion. MasterCard's gross dollar volume rose 12.8% to $655 billion.

Still the U.S., which is MasterCard's largest contributor to revenue, had the lowest growth rate in the quarter. While regions such as Europe and Asia Pacific had purchase volumes and transactions rise in the double digits, the U.S. market saw the least growth.

MasterCard's gross dollar volume growth rate in the U.S. fell to 6.2% from 10.6% in the fourth quarter of 2007.

"Much of our growth is being driven by the secular shift of electronic payments, which we believe is somewhat independent of the cyclicality of current market conditions," MasterCard's CFO Martina Hund-Mejean said on the call. That being said, the slowdown in the domestic economy "has had an effect on our growth in the United States."

Hund-Mejean reiterated that the company is seeing U.S. consumer spending pattern shifts to non-discretionary purchases, such as gasoline, food and healthcare, "compounded by the fact that consumers are finding it increasingly difficult to obtain credit as financial institutions tighten their criteria for loans and credit extension."

She added that even though there are economic downturns in the U.K., Spain and a few other European countries, "in general European markets continue to represent strong growth for us. Furthermore, we still see healthy cross-border volume growth."

Late Wednesday, rival Visa (V Quote) posted a profit of $422 million, or 51 cents a share, in its first full quarter as a public company.

"In my opinion, taking the environment into account, there is just not much here to complain about. The stock created a buying opportunity," says Craig Maurer, an analyst at Calyon Securities, a unit of Credit Agricole.