Mastercard Earnings: Growth Stays Healthy but Decelerates Modestly

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $406.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

Mastercard’s MA third-quarter results largely mirrored those of its peer Visa V, although growth did slow a bit sequentially. Overall, consumer spending appears to be resilient, and Mastercard continues to benefit from a bounceback in cross-border spending—in which the consumer and merchant are in different countries. Mastercard’s fees on these transactions are much higher.

We are comfortable with our $406 per share fair value estimate for the wide-moat company and consider Mastercard stock fairly valued.

Net revenue was up 14% year over year, or 11% when excluding currency impacts. Gross dollar volume increased 11% on a constant-currency basis, and switched transactions were up 15%. While growth is still healthy, it did decelerate modestly sequentially, and the figures for October declined a bit more. We don’t make much of minor deviations in quarterly growth, but we do think the market may be overly sensitive to any near-term shifts given the current macroeconomic uncertainty.

Cross-border volume has helped drive strong growth for Mastercard over the past couple of years as travel spending has recovered from the drop during the coronavirus pandemic. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 24% year over year in the third quarter. While this is still a healthy rate and Mastercard’s growth is better than Visa’s, growth has declined in the past few quarters as the company has started to converge on the prepandemic trend, and this tailwind may be coming to an end.

Adjusted operating margins (on a net revenue basis) improved to 58.8% compared with 57.7% last year, as solid growth appears to have led to some scale benefits. However, client incentives increased 22% year over year. We continue to believe the company will see only very modest margin improvement on a gross revenue basis, as Mastercard will likely share most of its scale benefits with issuer clients in the form of higher incentives.