Mastercard Earnings: Maintaining a Steady Trajectory

Mastercard Stock at a Glance

• Fair Value Estimate: $389.00
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

Mastercard Earnings Update

Like Visa V, Mastercard’s MA second quarter was uneventful, with the company largely maintaining its recent trajectory. Overall, we didn’t see anything in the quarter that would materially alter our long-term view, and we will maintain our fair value estimate of $389 per share for the company’s stock. We see its shares as fairly valued at the moment.

Net revenue increased 15% year over year on a constant-currency basis, roughly in line with the last quarter. Gross dollar volumes and transactions were up 12% and 17%, respectively. While volume growth outside the United States slowed slightly, we think Mastercard is holding roughly steady overall. However, we see the macroeconomic environment as potentially more fluid in the future.

Cross-border volumes have been a major driver for Mastercard recently, as travel spending has recovered from the COVID-19-related decline and cross-border volumes remain critical due to the outsize fees the firm collects on these transactions. Constant-currency cross-border volumes excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 29% year over year in the second quarter, with the company seeing roughly the same sequential growth rate decline as Visa for the period. This was expected, as volumes are now close to converging on the pre-pandemic trend. While growth remains strong in an absolute sense, should the economy trip into a recession, it could put the cross-border recovery at risk.

Mastercard continues to see some margin improvement, with adjusted operating margins on a net revenue basis improving to 58.6% from 57.9% last year. We think the scalable nature of the business allows for margin improvement over time. However, client incentives increased 22% year over year. As the distortions from the pandemic recede, we expect client incentives to continue to increase, making margin improvement on a gross revenue basis more difficult to achieve.