Mastercard outperforms earnings, cites uptick in domestic travel spending

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Mastercard Inc. posted surprising revenue growth Thursday morning, beating earnings expectations as government stimulus boosted spending and domestic travel improved. The company reported first-quarter net income of $ 1.8 billion, or $ 1.83 per share, down from $ 1.7 billion, or $ 1.68 per share, a year earlier. After adjusting for special items and the impact of equity investments, Mastercard MA, -2.17% earned $ 1.74 per share, down from $ 1.83 per share, but ahead of $ 1.58 per share that analysts surveyed by FactSet had been projecting.

Mastercard’s net income for the quarter increased to $ 4.2 billion from $ 4.0 billion, while analysts were projecting $ 4.0 billion. The company expects a revenue growth rate in the second quarter, in the high range of 20 (percentage range), or in the low to medium range 20 on a neutral currency basis and excluding acquisitions. The company also forecasts an operating expense growth rate in the 1930s or 1920s, excluding currency shocks and acquisitions. The implied margin outlook was a bit light relative to expectations, Barclays analyst Ramsey El-Assal wrote, as Mastercard increases spending in areas such as cybersecurity and its approach to multi-rail payments. “Despite the margin loss in the second quarter, we are encouraged by today’s pace and current momentum in business … and we would remain buyers in current weakness,” he wrote. The shares fell 2.4% in trading on Thursday afternoon. The company reported an 8% increase in gross dollar volume (GDV) in the latest quarter, while cross-border volume fell 17% amid continued pressure on international travel. Changed transactions increased 9% in the quarter. “We saw particular strength in debit, driven primarily by fiscal stimulus and equity gains,” Chief Executive Michael Miebach said on the Mastercard earnings call. “In terms of how people spend, e-commerce remains strong and we’re seeing an improvement in card-present spending.” While travel has been slow, Miebach said there has been a “recent improvement” in domestic travel and that he expects domestic travel to “progressively improve throughout the year in countries with strong vaccination programs.” “International travel should begin to open selectively in the second half of the year between countries with strong vaccination programs and / or low case rates,” he continued. A recent approach for Mastercard has been to try to get travel- or airline-focused co-branding deals, CFO Sachin Mehra told MarketWatch with cards that are “heavily skewed toward people who use the products for travel.” The company’s recent push in this area makes it “well positioned for the return of travel,” he argued. More generally, Mastercard argues that it has been gaining share in the debit market and recent achievements have contributed to the company’s debit growth. “The reality is that the ones we talked about many quarters ago are now paying off,” Mehra said, as it can take time for issuers to convert cards to Mastercard without disrupting cardholders. In the US, overall GDV increased 14%, with debit volumes growing 26% while credit volumes fell 1%. Outside of the US, GDV increased 5%, debit volumes increased 12%, and credit volumes decreased 2%. Miebach noted in the earnings call that discretionary spending in areas like travel is starting to pick up, so it’s “reasonable to expect a lot of that to drive credit growth again.” Shares of Mastercard have gained 23% in the last three months, as the S&P 500 SPX, + 0.47% has risen 13%.