Mastercard’s first quarter net revenue grew 17% to $7.3bn when ignoring currency moves, beating management guidance of 14-15%. There was strong growth in both the Payment Network and Value Added Services & Solutions.
The topline grew faster than expenses allowing underlying operating profit to rise by 19% to $4.3bn.
Free cash flow rose from $1.5bn to $2.2bn helped by the timing of receipts and payment. Period-end net debt was $10.9bn.
Mastercard returned $3.2bn to shareholders in dividends and buybacks.
In the second quarter the company expects revenue growth in the mid-teens.
The shares were flat in early trading.
Our view
Mastercard’s not showing any sign of weakness with first quarter payment volumes growing at double digit rates. Fears of an economic slowdown haven’t shown up in the numbers yet and seem unlikely to do so in the second quarter either. While there’s no guarantee this will continue, full-year underlying revenue growth guidance remains intact.
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. The rise of cryptocurrencies is another potential threat, but it’s not something Mastercard is ignoring, choosing to partner with some key players in the space.
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 cybersecurity 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 main rival, which is particularly dominant in the United States. That gives it more exposure to overseas markets where there’s still a structural tailwind blowing in Mastercard’s favour.
These services are helping too, 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. But robust margins and strong cashflows mean these are commitments Mastercard can currently afford
We think Mastercard’s growth prospects look better than much of the competition, due 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, and leaving the stock vulnerable to a downturn in economic activity.
Mastercard key facts
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