Mastercard’s first-quarter revenue grew by 12% to $8.4bn, ignoring currency movements, landing just ahead of market forecasts. Within that, value-added services led the way with 18% growth. Payment network revenues were up 8%, with purchase volumes up in all territories.
Underlying operating profit grew 13% to $5.1bn (3% ahead of consensus), as topline growth outpaced costs.
Profit growth and improved cash management saw free cash flow increase from $2.3bn to $2.8bn. Net debt at the end of March came to $11.1bn.
Share buybacks and dividends for the quarter came to $4.0bn and $0.8bn, respectively.
Full-year underlying revenue guidance has been raised at the top end, with growth now expected to be in the high single digits to low teens. Operating expense guidance was also nudged higher, and is now expected to grow by low double digits.
The shares fell 4.1% following the announcement.
Our view
Mastercard’s first quarter results didn’t contain any major curveballs, but a strong read through from rival Visa earlier in the week pushed the valuation higher, only to be unwound after the announcement.
Mastercard has a more even geographical mix than its main rival, who is particularly dominant in the United States, where cash-to-card migration has all but run its course. That gives it more exposure to overseas markets where there’s still an underlying tailwind blowing in Mastercard’s favour.
However, for the first time in five years, quarterly revenue growth rates have been outpaced by Visa. That’s not a trend we expect to become embedded, but Mastercard has more exposure to the Middle East, and has seen a steeper drop off in lucrative cross-border transactions due to the conflict in the Gulf. Given the ongoing uncertainty, that’s likely to remain a challenge. Regulatory pressure on both card issuers and the payment networks is another risk we’re monitoring.
Card usage continues to grow, helped by the rise of contactless payments and digital wallets. The threat of technological disruption is one to watch, but Mastercard’s enormous scale also positions it as an enabler of change. The group’s shown it’s not afraid to move with the times, securing key partnerships with the likes of Apple and cryptocurrency payment provider Ripple. This scale also provides an opportunity to capture a bigger part of the value chain within each transaction.
Services are an important and faster-growing part of the business and one where Mastercard appears to be stealing an edge over its rivals. Its cybersecurity and data analytics capabilities leave it well placed to deepen its relationships with vendors as artificial intelligence adoption changes the way they engage with retailers. Management’s taking some bold measures to adapt to change, a vital step when the potential for technology to disrupt the industry remains elevated.
Mastercard’s growth prospects look better than much of the competition, due to some of the structural differences discussed above. That’s reflected by forecasts ahead of the peer group in both the short and medium-terms.
The valuation has been under significant pressure of late. We think some material earnings downgrades are already priced in. That could mark an attractive entry point for a quality company at the centre of the payments ecosystem. However, relatively high indirect exposure to the conflict in Iran means investors need to be prepared for further volatility.
Mastercard key facts
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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 LSEG. 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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