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Mastercard Earnings: A Stable Environment Highlights the Firm’s Strengths

We think the current environment highlights the solid growth Mastercard can achieve over time.

MasterCard Logo on credit card.
Securities In This Article
Mastercard Inc Class A
(MA)

Key Morningstar Metrics for Mastercard

What We Thought of Mastercard’s Earnings

Mastercard’s MA first-quarter results show the company is on a steady path and performing roughly in line with its peer Visa V. Following the dramatic ups and downs of the pandemic and the ensuing recovery, we think Mastercard has settled into a more stable environment, and the company’s first-quarter results are largely in line with our long-term expectations. We will maintain our fair value estimate of $451 per share and wide moat rating, and we consider the shares fairly valued.

Net revenue was up 11% year over year on a constant-currency basis. Gross dollar volume increased 10% on a constant-currency basis, and transactions were up 13%. While macro uncertainty exists, consumer spending appears to be holding for now, and we think the current environment highlights the solid growth the company can achieve over time, given favorable long-term secular tailwinds.

Cross-border volume, the most volatile area over the past few years, has settled into a more stable groove. Constant-currency cross-border volume excluding intra-Europe transactions—priced similarly to domestic transactions—grew 19% year over year, in line with the last quarter. Mastercard appears to be modestly outperforming Visa on this front. Cross-border growth is still a bit above our long-term expectations, but we think most of the benefit from the bounceback in travel has been realized.

Adjusted operating margins (on a net revenue basis and excluding one-time items) increased to 58.8% from 58.2% last year. With solid growth, we think the scalability of the business is showing. However, client incentives increased 20% year over year on a constant-currency basis. With incentives increasing again now that pandemic-related distortions have rolled off, margin improvement on a gross revenue basis will be much harder.

MasterCard Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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