Mastercard Earnings: Solid Quarter as Consumer Spending Holds Up

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

Overall, we believe Mastercard’s MA first-quarter results were solid, but we think the market may be disappointed that the company didn’t match Visa’s strong showing.

Why it matters: Mastercard generated constant-currency net revenue growth of 12%, down a bit from recent quarters.

• Gross dollar volume increased 7% on a constant-currency basis, with US volumes negatively affected by the migration of Capital One debit volumes. Excluding this, volume trends look reasonably stable, and management’s comments echoed what we heard from Visa, that consumer spending remains strong.
• Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 12% year over year during the quarter, down a bit from 13% last quarter. Cross-border transactions are particularly lucrative for the networks and the most macro-sensitive area. This area bears close watching, in our view, and the company’s April travel spending numbers were soft, which management attributed to impacts related to the Iran war.

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

• Mastercard continues to see solid margin improvement, with adjusted margins (using net revenue) improving to 60.8% from 59.3% (up 100 basis points excluding currency effects).
• Client incentives were up 19% on a constant currency basis, a relatively high level. This metric is driven in part by the timing of renewals and the outsize growth is presumably transitory, but incentives were likely a drag on results in the quarter.