Mastercard Inc (MA) Common Stock

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Mastercard’s third-quarter net revenue grew 14% to $7.4bn, ignoring currency impacts. This was ahead of market expectations, driven by a strong uplift in cross-border payments and value-added services.

Underlying operating profits rose 15% to $4.4bn, helped by the higher revenues.

Free cash flow improved from $7.6bn to $9.6bn due to increased levels of cash generation. Net debt stood at $7.3bn.

During the third quarter, Mastercard returned $3.5bn to shareholders through a combination of dividends and share buybacks.

Full-year revenue guidance is for growth in the low teens, in line with the 13% markets are expecting.

The shares were broadly flat in early trading.

Our view

Mastercard delivered a strong set of third-quarter numbers, with both revenue and profits growing at double-digit rates. Things have ramped up further so far in the fourth quarter, helped by favourable payment timings, meaning full-year targets look well within reach.

Despite fierce competition in the rest of the payments world, the card networks remain dominated by two giants: Visa and Mastercard. These networks 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 buybacks, although there can’t be any guarantee of future payments.

Mastercard’s revenue is forecast to outgrow faster than Visa’s over the next few years, which we believe is down to some of the structural differences discussed above. That’s reflected in its valuation sitting at the top end of the peer group on a price-to-earnings basis, adding pressure to deliver. We think this year’s targets are within reach, but keeping the momentum going is no easy task. And disappointments further down the line can’t be ruled out.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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