Mastercard Sees a Bounceback in First Quarter

Mastercard’s (MA) first-quarter results largely mirrored what we saw from Visa, as the networks continue to bounce back from the headwinds they have faced through the pandemic. In our view, the relatively quick recovery supports our wide moat rating and highlights the favorable long-term secular backdrop for Mastercard. The exit from Russia will be a bit of a drag this year, but even factoring this in, we expect relatively strong growth in the near term. We will maintain our $369 fair value estimate.

Net revenue increased 28% year over year on a constant currency basis, a bit better than the growth we saw at Visa. Gross dollar volume was up 17%, and transactions increased 22%. The decision to exit Russia reduced transaction growth by 2 percentage points.

Cross-border volume has been the key issue for the networks through the pandemic, as this area generates much higher fees and is highly exposed to travel. Results in the quarter suggest an ongoing and relatively sharp recovery, mirroring what we saw from Visa. Excluding intra-Europe transactions (which are priced similarly to domestic transactions), cross-border volumes grew 53% year over year on a constant currency basis, basically in line with the growth rate Mastercard has seen in recent quarters. The impact of the omicron variant appears to have been short-lived, and we continue to expect a full recovery in travel spending over time. This should create a significant tailwind for Mastercard in the near term and will likely be the main driver of strong growth.

The bounceback in revenue aided margins, with adjusted operating margins improving to 57.5% from 52.9% last year. Current margins are roughly in line with prepandemic levels, as Mastercard has been able to releverage its costs.