Mastercard Earnings: Resilience in the Face of Macro Uncertainty

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

Mastercard MA turned in a solid first quarter. Results largely mirrored what we saw at peer Visa, although Mastercard performed a little better, in our view. Overall, we think that the wide-moat company continued to show good resilience in the face of economic uncertainty. We will maintain our $389 per share fair value estimate and see shares as about fairly valued.

Net revenue increased 11% year over year, or 14% on a constant currency basis. Volume was up 15% and transactions increased 12%. Like Visa, Mastercard saw volume growth pick up sequentially, but domestic growth slowed as the company moved through the quarter. Management’s commentary focused on the resilience it is seeing in consumer spending, but we see the macroeconomic environment as fluid going forward.

Cross-border volume has been a major driver for Mastercard recently, as the company collects much higher fees on these transactions, and volumes are in part tied to travel spending. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 39% year over year in the quarter on a constant currency basis, which represented an uptick from the previous quarter.

We’re pleased to see Mastercard improving growth in this area, and management pointed to the opening of China as a catalyst, but we expect growth to come down as volumes converge on the prepandemic trend. Further, a negative turn in the economy could put the recovery in travel at risk.

Unlike Visa, Mastercard was able to achieve some margin improvement during the quarter, with adjusted margins (based on net revenue) increasing to 58.2% from 57.5% last year. Longer term, we think the scalable nature of the business should allow for margin expansion over time. However, client incentives increased 25% year over year during the first quarter and appear to have resumed their upward path, which could limit margin improvement on a gross revenue basis longer term.