Mastercard Incorporated (NYSE: MA) surpassed Wall Street’s expectations for the third quarter, driven by robust consumer spending and strategic growth in value-added services.
Despite ongoing economic uncertainties, Mastercard displayed strong performance, reporting an adjusted earnings per share (EPS) of $3.89, exceeding the consensus estimate of $3.74.
This performance led to an initial 3% increase in Mastercard’s stock price, reaching an all-time high before retreating slightly amid regulatory scrutiny over alleged anti-competitive behavior by certain card scheme services in the European Union.
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At press time, Mastercard stock is trading at $499.50, reflecting an 18% increase year-to-date.
Strong consumer spending and cross-border demand drive performance
Even as American households face significant financial strain, carrying a record $628 billion in credit card debt each month, Mastercard has benefited from steady spending levels.
The company’s earnings reflect its successful response to stable economic conditions in the U.S., where strong labor markets and moderating inflation bolstered consumer confidence.
This resilience in consumer behavior reflects broader economic optimism, with positive economic indicators helping to ease recession fears and support consumer confidence.
The company also observed increased spending across Europe as economic confidence improved, strengthening its global footprint.
“The labor market remained strong, even if slightly below historically tight levels. And inflation has moderated, albeit at varied levels across categories and countries. Overall, we remain positive about our growth outlook, but we will continue to monitor the environment.”-Mastercard CEO Michael Miebach
Gross dollar volume rose by 10% year over year to $2.5 trillion, with double-digit growth in transactions processed on Mastercard’s network.
Cross-border volume, a key measure of international travel spending, surged by 17% YoY on a local currency basis, marking a strong recovery in travel and international transactions. Month-to-date cross-border volume grew by 18% through Oct. 28, following 16% growth in September.
These gains helped Mastercard outpace Visa in several key areas, particularly in the U.S. debit market, further solidifying its competitive advantage.
Value-added services propel revenue growth
Mastercard’s expanding portfolio of value-added services was a major contributor to its strong financial performance.
Revenue from this segment, which includes consulting, marketing, fraud prevention, and security solutions, increased 19% on a currency-neutral basis, highlighting the success of Mastercard’s diversification strategy.
The company’s emphasis on fraud protection and consulting services has proven crucial as businesses increasingly seek comprehensive payment solutions.
Switched transactions rose by 11% YoY, showcasing Mastercard’s advantage in processing volume, while transaction processing assessments grew by 14% YoY.
According to CFO Sachin Mehra, part of the uptick in switched volumes in October was due to specific factors, including high-volume calendar days and the timing of social security payments, which boosted the overall transaction volume.
Strength in U.S. debit market and competitive position
Mastercard widened its lead over Visa (NYSE: V) in U.S. debit growth, with switched volume rising 12% YoY in October and 8% in the first weeks of Q4, outpacing Visa’s performance in the same period.
Mizuho analyst Dan Dolev attributed Mastercard’s success to its expanded share in the U.S. debit sector, citing accelerated volume growth and a clear edge over Visa’s U.S. debit business.
Analysts view this trend as a key differentiator, as Mastercard continues to capture additional market share.
This competitive edge, especially in U.S. debit, underscores Mastercard’s effective market positioning, with analysts forecasting continued share gains in domestic spending.
For instance, Piper Sandler reiterated its “Buy” rating for Mastercard and raised its price target from $536 to $565, reflecting the company’s promising trajectory and consistent growth.
Financial outlook and share repurchases
Mastercard’s strong revenue growth of 13% and net income of $3.3 billion, up from $3.2 billion YoY, underline its profitability and operational efficiency.
The company’s operating expenses increased by 25% YoY, influenced by restructuring costs, but it balanced this with substantial share repurchases totaling $2.9 billion during the quarter.
This combined with Mastercard’s EPS boost from share buybacks, reflects confidence in sustained performance and shareholder returns.
Moreover, Mastercard anticipates low-teen revenue growth on a currency-neutral basis for Q4 2024, with operating expenses expected to rise in the low double-digit range.
Looking ahead, with effective financial strategies and expansion in high-demand service areas, Mastercard’s strong market position inspires optimism for continued profit growth.
