Mastercard (MA) Tops Q3 Estimates as Value-Added Services Grow 19%

Mastercard (MA) reported third-quarter net revenue of $9.81 billion, up 14% year on year, beating the $9.63 billion analysts expected, according to Zacks consensus data cited by Yahoo Finance. Adjusted earnings of $5.31 a share topped the Zacks estimate of $5.14. The shares jumped 4.2% on Thursday to close at $635.70, a 52-week closing high, after the results came out before the open.

What stood out

Mastercard earns money two ways: fees on the card payments that cross its network, and value-added services, such as fraud prevention, authentication, and data tools sold to banks and merchants. Services grew faster, rising 19% to $4.06 billion, while payment network revenue rose 11% to $5.75 billion, the release and the quarterly filing showed. Services now make up about 41% of net revenue.

The network business was driven by volume. Gross dollar volume, the total spent on Mastercard-branded cards, rose 7% on a local-currency basis to $3.0 trillion, switched transactions rose 9%, and cross-border volume rose 11%. Rebates and incentives paid to bank customers, which come out of revenue, grew 18% on new and renewed deals.

Part of the beat was borrowed from the next quarter. Some services projects and payment network deals moved from the fourth quarter into the third, Reuters reported, a point Chief Financial Officer Ling Hai, who took the job in August, also made on the earnings call. “Another strong quarter for Mastercard, delivering net revenue growth of 14%,” Chief Executive Michael Miebach said in the release.

Margins widened. The adjusted operating margin rose to 60.5% from 59.8% a year earlier, and Mastercard bought back $3.0 billion of its own stock in the quarter on top of $763 million in dividends.

The outlook

For the fourth quarter, management expects net revenue to grow at the high end of the low double digits, on a currency-neutral basis and excluding acquisitions, according to the call transcript and Zacks’ summary on Yahoo Finance. Hai flagged a currency headwind of about 1 percentage point on fourth-quarter revenue.

That pace would be slower than the third quarter’s 14%, partly because of the work and deals that were pulled forward.

Our take

This was a solid beat with an asterisk. Services growth of 19% and an 11% rise in cross-border volume show the business is healthy, but some of the surprise came from deals and projects that would otherwise have landed in the fourth quarter. The stock now sits at its 52-week closing high, so next quarter we’d watch whether revenue growth holds at the high end of the low double digits once that timing benefit reverses.