Mastercard Earnings: Results Maintain Recent Trajectory, but Uncertainty Ahead

Key Morningstar Metrics for Mastercard

• Fair Value Estimate: $500.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Mastercard’s Earnings

Mastercard’s MA first-quarter results contained no major surprises and largely mirrored what we saw from Visa V. While consumer spending is holding steady for now, we see uncertainty ahead.

Why it matters: On a constant-currency basis, net revenue grew 17% year over year, which was in line with the previous quarter. In our view, recent results highlight the strong growth the wide-moat company can achieve in a stable environment.

• Year-over-year gross dollar volume growth was 9% on a constant-currency basis, with transactions up 9% as well. Volume growth dipped a bit sequentially but held within the range we’ve seen over the past year. Like Visa, Mastercard has also seen a slight uptick in growth in April.
• The tailwind from the bounceback in travel has been falling off, and that continued during the first quarter. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 16% year over year in the quarter, down from 20% growth in the previous quarter. We believe most of the benefit from the travel recovery has been realized.

The bottom line: We will maintain our $500 per share fair value estimate and see shares as modestly overvalued.

• Mastercard’s management largely echoed comments we recently heard from Visa, suggesting consumer spending is holding steady for now. However, Mastercard’s results remain leveraged to consumer spending, and particularly to some discretionary areas such as cross-border volume. In our view, tariffs create significant near-term uncertainty going forward, and it will take time for the impact to be seen.
• Mastercard saw solid margin improvement, with adjusted operating margins (based on net revenue) increasing 50 basis points year over year. Client incentive constant currency growth of 15% was relatively muted and a bit below revenue growth.