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Mastercard Inc. became the latest card giant to report resilient results in the face of a complicated macroeconomic backdrop, as the company notched a sizable earnings beat and emphasized that had yet to see a negative impact on spending volumes from inflation.
Shares of Mastercard
MA,
were up 3.5% in midday trading Thursday following the company’s latest earnings report, building on a 5.1% gain achieved Wednesday in the wake of a strong report from peer Visa Inc.
V,
that sent positive signals about broader spending trends.
“On the macroeconomic front, consumer spending remains strong, particularly as economies across the globe continue to reopen and pandemic-related restrictions are lifted,” Chief Executive Michael Miebach said on Mastercard’s earnings call.
While he acknowledged that the company was monitoring factors inflation and other factors, such as supply-chain pressures and geopolitical tensions, he noted that Mastercard had “not seen anything yet in terms of changing consumer spending behaviors” related to inflation.
Chief Financial Officer Sachin Mehra told MarketWatch that “moderate inflation is something that provides us a modest tailwind,” while acknowledging that a high-inflation or hyper-inflationary environment may not provide the same benefits for the company.
Because Mastercard charges basis points on the dollar value of spending, the company has opportunities to benefit when spending values go up in a moderate-inflation environment. But Mehra cautioned that there are also nuances to the dynamic, since inflation in “highly carded” categories can offer a tailwind, but inflation in other categories, like rent, can leave consumers with less income for discretionary card spending.
The company posted net income of $2.6 billion, or $2.68 a share, up from $1.8 billion, or $1.83 a share, in the year-prior quarter. After adjustments, Mastercard reported earnings per share of $2.76, up from $1.74 a year before and above the $2.18 FactSet analyst consensus.
Revenue increased to $5.2 billion from $4.2 billion and came in ahead of the $4.9 billion that analysts were projecting.
Mastercard continues to anticipate full-year net-revenue growth at the high end of a high-teens percentage rate, excluding the impact of currency and acquisitions.
“Essentially, we are maintaining our growth expectations in the same range, as the strong cross-border travel recovery and strength in consumer spending helped mitigate the loss of sizable revenues in Russia and Ukraine,” Mehra said on the earnings call. Mastercard announced in early March that it was suspending Russia operations.
Mastercard expects a growth rate at the high end of high-teens when looking at the second quarter as well, also on a currency-neutral basis and when excluding acquisition impacts.
The company has benefited from what Miebach said was “particularly strong” growth its cross-border business, which saw volumes grow 53% as travel picked up.
Mehra noted on the call that cross-border travel was up 179% in the first three weeks of April, marking a 38-percentage-point improvement versus the first quarter.
The rebound in cross-border travel is “occurring faster than our earlier expectations,” Mehra continued. “We are well positioned to capitalize on this growth with our travel-oriented portfolios.”
The company called out a renewed partnership with American Airlines Group Inc.
AAL,
for its co-brand card as well as various travel-related initiatives in the U.K.
Mastercard also sees ample room to recover in cross-border travel as inbound activity to Asia is still depressed amid pandemic-related restrictions. Asia-Pacific represented about 14% of inbound cross-border travel volumes before the pandemic but the region was only at roughly 40% of 2019 levels in the first quarter.
The company increasingly is wading into new areas, in part with help from recent acquisitions. Mastercard in 2020 acquired open-banking company Finicity, which makes it easier for people to link their financial information to new services.
Many rent payments are made by bank transfers, not credit or debit cards, and landlords face issues when tenants have insufficient funds in their bank accounts. Mastercard’s open-banking technology enables a score that landlords can use to determine the probability that they will be successful in tapping into someone’s bank account for rent payments, and whether there are certain days that are most optimal to try.
“This is about expanding our addressable market,” Mehra told MarketWatch.
Mastercard shares have lost 2.2% over the past three months as the S&P 500
SPX,
has shed 4.8%.
