Mastercard’s Earnings Show Strong Growth on Bounceback From Pandemic

Mastercard’s (MA) third-quarter results largely mirrored what we saw from Visa. The company continues to enjoy strong growth as it bounces back from pandemic-related impacts and favorable long-term secular trends assert themselves. We will maintain our $369 fair value estimate and wide moat rating and see the shares as modestly undervalued.

Net revenue was up 15% year over year, or 23% excluding currency impacts. With about two thirds of its year-to-date gross dollar volume coming from outside the United States, Mastercard is relatively exposed to the negative impact of the stronger dollar. Gross dollar volume was up 11% on a constant-currency basis, and switched transactions were up 9%.

Cross-border transactions have been a major factor for the business over the past couple of years, thanks to the pandemic-related decline in travel and the relatively large fees Mastercard collects on these transactions. But the more recent recovery in travel has been a major tailwind for Mastercard. Constant-currency cross-border volume excluding intra-Europe transactions (which are priced similarly to domestic transactions) grew 53% year over year in the quarter, which marks a slight deceleration from last quarter, although growth remains quite strong. Cross-border travel-related volume is now at 124% of the 2019 level. We continue to expect a full recovery in travel spending over time, and there are likely still benefits for Mastercard ahead. However, the impact on overall revenue will likely diminish going forward as the company runs against more difficult comparisons, and this recovery could be at risk in the near term if the economy takes a negative turn.

The strong top line continued to benefit margins, with the adjusted operation margin (based on net revenue) improving to 57.7% from 56.7% last year. But with margins now roughly in line with prepandemic levels, further improvement may be more modest.