Mastercard Q2 Earnings Show Continued Outsized Growth

Mastercard’s (MA) second-quarter results largely echoed what we saw from Visa, although Mastercard posted stronger growth. We think the bounce-back in travel and cross-border volumes positions wide-moat Mastercard for outsized growth in the near term, absent an economic downturn. To that point, management joined Visa in stating that consumer spending remains strong. We will maintain our $369 fair value estimate.

Net revenue increased 21% year over year, or 27% on a constant currency basis. Gross dollar volume was up 14% on a constant currency basis, and switched transactions was up 12%.

Cross-border transactions have been the biggest swing factor for Mastercard in recent years, given much higher fees for these transactions and the dramatic decline in travel during the early stages of the pandemic. But this has turned into a material tailwind over the past year as the pandemic impact has faded and reversed. Constant currency cross-border volume excluding intra-Europe transactions (which are priced similarly to domestic transactions) grew 58% year over year in the quarter, essentially maintaining the growth rate Mastercard has seen in recent quarters. Cross-border travel-related volumes are now at 118% of the 2019 level. We continue to expect a full recovery in travel spending over time, and this should drive outsized growth in the near term.

Stronger revenue translated into better profitability given the scalability of Mastercard’s business model. Adjusted operating margins (based on net revenue) improved to 57.9% from 53.2% last year. Margins are now roughly in line with prepandemic levels.