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Mastercard Q2 Earnings Show Continued Outsized Growth

Margins are now roughly in line with prepandemic levels; Stock is fairly valued.

Image of Mastercard credit card.

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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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