Mastercard Earnings: Solid Consumer Spending Leads to Steady Growth

Key Morningstar Metrics for MasterCard

• Fair Value Estimate
  : $550.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of MasterCard’s Earnings

Mastercard’s MA second-quarter results largely echoed what we saw from Visa, and suggest consumer spending is holding at a level that will allow the networks to see solid growth.

Why it matters: Constant currency year-over-year net revenue growth was 12%, in line with the previous quarter.

• Year-over-year volume growth for constant currency purchases came in at 10%, up from 9% last quarter, with the improvement largely driven by domestic growth. Mastercard’s results largely mirrored Visa’s, suggesting consumer spending is holding at a healthy level.
• Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 11% year over year, down from 12% in the previous quarter. The situation in Iran was a bit of a drag on travel spending, but monthly figures suggest the impact dissipated through the quarter.

The bottom line: We will maintain our $550 fair value estimate per share for the wide-moat company and see shares as about fairly valued.

• On the positive side, Mastercard continues to see some margin improvement, with adjusted margins up 120 basis points year over year on a net revenue basis. However, year-over-year client incentives growth of 20% on a constant currency basis highlights that margin improvement on a gross revenue basis is much more difficult.
• Mastercard saw year-over-year constant currency growth of 18% for value-added services, in line with the previous quarter. Visa is outperforming Mastercard on this front at the moment, but we are skeptical that this edge will be maintained.