Mastercard’s second quarter results were ahead of market forecasts. Net revenue was up by 13% to $7.0bn, ignoring currency movement. This was driven by strong growth in transaction volumes across all territories, as well as cross-border payments. Revenue from value-added services and solutions grew by 19%.
Underlying operating profit was up by 15% to $4.1bn, as revenue growth outpaced the increase in expenses.
Free cash flow improved from $4.4bn to $4.5bn. Net debt came in at $8.6bn. Mastercard returned $3.2bn to shareholders through a combination of share buybacks and dividends.
Full year guidance remains unchanged, with revenue and costs expected to grow at low double digit rates.
The shares were up 3.4% following the announcement.
Our view
Mastercard’s robust start to 2024 continued into the second quarter. There are no changes to the full-year targets and given the direction of travel, we don’t think they look too demanding.
Despite fierce competition in the rest of the payments world, the card networks remain dominated by two giants, Visa and Mastercard. They enable banks to issue credit and debit cards without either network having to take any credit risk.
Notwithstanding the emergence of competing payment methods, card usage continues to grow and the model has proved its resilience through multiple economic ups and downs. In fact, Mastercard has grown revenue in all but one year since 2006. Despite the proliferation of payment methods, many of the newer kids on the block such as Apple Pay and PayPal still rely on cards for a big chunk of their transactions.
Services are also an important and faster-growing part of the business and one where Mastercard appears to be stealing an edge over its rivals. Growth is being driven by demand for cyber security and data analytics. That’s also helping Mastercard to steal more market share in the United States, boosting growth in what is now a mature market. Cash-to-card migration has all but run its course across the pond.
However, Mastercard has a more even geographical mix than its arch-rival Visa, which is particularly dominant in the United States. That gives it more exposure to overseas markets where there’s still a tailwind blowing in Mastercard’s favour.
These services have helped to prop up revenue growth so far in 2024, but the functionality they provide merchants and financial institutions should also help to win market share, and that looks to be playing out in multiple territories. In an effort to win over more customers, rebates and incentives are also on the rise.
Keeping ahead of the pack doesn’t come cheap though, with research & development costs forecast to nudge towards the $1bn mark over the next couple of years. But robust margins and strong cashflows mean these are commitments Mastercard can afford. This also leaves room for dividends and share buy backs, although there can’t be any guarantee of future payments.
Mastercard’s revenue is forecast to outgrow Visa in the next few years, which we believe is down to some of the structural differences discussed above. This is reflected by its valuation sitting at the top end of its peer group on a price-to-earnings basis, which adds pressure to deliver. There’s still some work to be done to meet this year’s number so whilst we like the story, we do see some potential downside risk if growth targets aren’t met.
Mastercard key facts
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