Mastercard Earnings: Steady Results Amid Strong Consumer Spending

Key Morningstar Metrics for MasterCard

• Fair Value Estimate: $520.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of MasterCard’s Earnings

Mastercard’s MA third-quarter results largely held steady sequentially, as consumer spending appears to be holding up.

Why it matters: Constant currency year-over-year net revenue growth was 15%, down slightly from the previous quarter but strong in an absolute sense, in our view.

• Global constant currency year-over-year volume growth was 9%, roughly in line with the previous quarter, with transaction growth holding steady at 10%. US volume growth improved a bit sequentially, echoing what we saw at Visa, and suggesting that domestic consumer spending remains healthy for now.
• Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 13% year over year during the quarter, in line with the previous quarter. Going forward, we think this area is most sensitive to the macro environment, as cross-border transactions center on online purchases (which skew discretionary) and travel.

The bottom line: We will maintain our $520 per share fair value estimate for the wide-moat company and see the shares as about fairly valued.

• While results continue to hold up, we see potential downside risk in the near term, given macro conditions in the United States, although we note that Mastercard is less exposed to domestic volumes than Visa.
• Adjusted operating margins improved to 59.8% from 59.3% last year. Year to date, adjusted operating margins are up 50 basis points, roughly in line with our long-term expectations. Growth in client incentives year over year was relatively muted in the quarter at 15%.