Mastercard Earnings: Results Suggest Consumer Spending Remains Steady

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $451.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

While Mastercard’s MA second-quarter results show many of the same dynamics as Visa V, the firm appears to be modestly outperforming its peer. We still believe Mastercard has slightly stronger long-term prospects, given its smaller size and lower exposure to relatively mature markets. We will maintain our $451 fair value estimate for the wide-moat company, and we see shares as fairly valued.

Net revenue increased 11% year over year, or 13% on a constant-currency basis. Gross dollar volume was up 9% on a constant-currency basis and switched transactions were up 11%. This represented a slight decline from the previous quarter, but this appears to be mainly due to the inclusion of the leap year last quarter. Overall, while we think macro conditions remain the biggest potential swing factor in the near term, these results suggest consumer spending remains relatively stable.

Cross-border volume is particularly lucrative for Mastercard and has been a significant tailwind recently. However, we’ve seen signs that the impact is tapering off for both Visa and Mastercard, and this quarter provided further evidence. Constant-currency cross-border volume, excluding intra-Europe transactions—priced similarly to domestic transactions—grew 18% year over year, down slightly from 19% in the last quarter. While growth in this area is still healthy and Mastercard is modestly outperforming Visa, the recovery in cross-border volume increasingly looks to be largely realized.

Adjusted operating margin for the quarter was 59.4%, compared with 58.6% last year. With Mastercard seeing relatively strong growth, it appears to see some scale benefits. Client incentives increased 16% year over year on a constant-currency basis. With client incentives resuming their historical upward path, margin improvement on a gross revenue basis will likely be harder to realize.