Mastercard Earnings: Settling Into a Groove

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $465.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

We think Mastercard’s MA third-quarter earnings mirrored what we saw from Visa V, though Mastercard appears to be performing better at the margin. In recent quarters, pandemic, political, and macro effects have dissipated, and we see this quarter as further evidence of stability. We think Mastercard’s attractive long-term growth prospects and strong profitability will become clearer. We maintain our fair value estimate of $465 per share, and see the stock as about fairly valued.

Constant currency net revenue increased 14% year over year, a 1-percentage-point improvement from the previous quarter. Payment volume was up 10% constant currency, also up slightly from last quarter. Overall, though, we think results from the networks suggest consumer spending is holding steady.

Cross-border volume has been the one area seeing an ongoing tailwind over the past couple of years. But this tailwind has been fading, and this quarter provided further evidence. Constant-currency cross-border volume, excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 17% year over year in the quarter, down a bit from 18% in the last quarter. While Mastercard is seeing cross-border growth fade at a similar rate as Visa, its absolute growth is higher, suggesting its volumes might not have fully normalized yet.

Adjusted operating margins (based on net revenue) improved to 59.3%, compared with 58.8% last year. The rate of margin improvement was in line with what we’ve seen from the company this year and with our long-term expectations. Mastercard is outperforming Visa on this front, but we don’t read much into near-term margin results, as we think lower margins are often driven by investments for growth. Client incentives grew 19% year over year on a constant currency basis, highlighting how margin improvement on a gross revenue basis is a much more difficult task.