Mastercard Trades Higher After Better-Than-Expected Q2 Results

Give credit where credit’s due: Mastercard (NYSE: MA) topped Wall Street expectations for the second quarter Tuesday. Rival Visa NYSE: V also exceeded views in its report earlier in the week. 

Mastercard earned $1.98 per share, up 43% from the year-ago quarter. Revenue was $4.5 billion, a year-over-year gain of 36%. It marked the first earnings increase since the quarter ended in March 2020. 

Analysts expected earnings of  $1.74 per share and revenue of $4.37 billion.

Shares closed Thursday at $388.81, a gain of $5.37, or 1.4%. 

In its earnings release, the company cited some key metrics behind the revenue growth:

• Gross dollar volume was up 33%, on a local currency basis, to $1.9 trillion. 
• Cross-border volume advanced 58%. 
• Switched transactions, which is a payment industry term to describe the process of authorization, clearing and settlement, grew to the tune of 41%.

These increases to net revenue were partially offset by rebates and incentives, which increased 53%, or 49% on a currency-neutral basis. The company said that increase reflects higher growth in volume and transactions and new and renewed deals.

In the earnings call, chief financial officer Sachin Mehra explained the rebates and incentives, saying the measures are in place to win market share. 

“We will continue to do new deals, which will have an impact on rebates and incentives. One piece of information I'll share with you is that as it relates to Q3, we expect rebates and incentives as a percentage of growth to be generally in line with what we saw in Q2,” he said. 

In the second quarter, Mastercard repurchased about 4.6 million shares at a cost of $1.7 billion. It paid out $434 million in dividends. Quarter-to-date through July 26, the company repurchased approximately 1.1 million shares at a cost of $398 million, leaving $6.4 billion remaining under the current repurchase program authorizations.

The company is also taking bigger steps into the world of digital payments. 

Earlier in the week, Mastercard said it would launch its Start Path global startup engagement program geared toward fast-growing digital assets, blockchain and cryptocurrency companies. Mastercard already has a digital assets program, and Start Path is an extension of that. The company said seven startups joined the program to help ”expand and accelerate innovation around digital asset technology and make it safer and easier for people and institutions to buy, spend and hold cryptocurrencies and digital assets.”

One of the startups highlighted in Mastercard’s release is Singapore’s Mintable, which Mastercard describes as “a non-fungible token (NFT) marketplace where users can create, buy and sell digital and physical assets backed by the blockchain such as digital collectibles, avant-garde artwork and even music. The Mintable platform is packed with novel features such as gasless minting and credit card purchasing that are designed to empower the everyday person to get involved with NFTs without any prior knowledge in crypto or coding.”

Analysts expect Mastercard to grow earnings by 23% this year, and another 33% in 2022. 

Addressing future growth, Mehra said, “If spending levels to continue to improve along the current trajectory, we would expect Q3 net revenues to grow at the high end of mid-20s growth rate year-over-year on a currency-neutral basis, excluding acquisitions.”

He acknowledged tougher year-over-year comparisons for the third quarter, as consumer spending rebounded in that quarter a year ago after the initial pandemic shock. 

“It is also important to point out and this is just one potential scenario as the level of uncertainty remains related to new Covid variants and the progress of vaccinations. And, therefore, the pace of recovery may not be linear,” he added. 

Mastercard shares, which advanced 7.79% and 25.73% over the past year, has been correcting since late April. The consolidation has been shallow, and could be categorized as a cup, saucer or a flat base. At this juncture, it doesn’t matter how the formation is categorized, as the current buy point is the April 28 high of $401.50.