Mastercard Moves Toward Higher Growth in First Quarter

There was some noise in Mastercard's MA results this quarter, as the company lapped the start of the coronavirus pandemic toward the end of the quarter. However, adjusting for this, we think the results support the idea that Mastercard continues to slowly but steadily inch back toward more normalized growth. We will maintain our $320 fair value estimate and wide moat rating. Net revenue was up 4% year over year, or 2% on a constant-currency basis, a significant improvement from the declines the company had been seeing to this point. Gross dollar volume was up 8% and switched transactions were up 9% year over year. This was aided by comping against the start of the pandemic in the last couple of weeks of the quarter. However, switched volume was up a little over 20% against 2019 levels, and it appears the trend was modestly positive as Mastercard moved through the quarter. While there is still a way to go, we think results for Mastercard and Visa suggest the networks are on a path toward more normalized growth. The biggest headwind for Mastercard continues to be cross-border volumes, which have not improved at the same rate as domestic transactions and carry an outsize level of importance for the networks because of the higher fees collected on these transactions. Cross-border volume was down 17% year over year on a constant-currency basis, and Mastercard appears to be underperforming Visa in this respect. However, at this point in time, we see differentials between the two networks largely due to mix, as opposed to any shift in competitive position. While there does appear to be a mild recovery underway for both networks, we believe the headwind will remain in place for some time, with a meaningful bounceback hinging on global vaccination efforts, and governments opening borders. Although the timing is difficult to predict, history does suggest travel will ultimately make a full recovery.

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