Mastercard sees recovery in travel-related spending as earnings beat expectations

Mastercard sees recovery in travel-related spending as earnings beat expectations

Mastercard Inc. exceeded expectations with its latest results Thursday amid a “healthy” domestic spending landscape and a recovery in cross-border activity, though its shares turned lower in the wake of the report.

The company generated third-quarter net income of $2.41 billion, or $2.44 a share, up from $1.51 billion, or $1.51 a share, in the year-prior quarter. Mastercard
MA,
-1.61%

generated adjusted earnings per share of $2.37 a share, up from $1.60 a year earlier and ahead the FactSet consensus, which called for $2.19 a share.

Mastercard’s revenue for the period increased to $4.96 billion from $3.84 billion, while analysts had been looking for $4.95 billion. “Domestic spending levels remain healthy, and we are encouraged by the recent resurgence in international travel,” Chief Financial Officer Sachin Mehra said on the company’s earnings call.

Cross-border spending “has recently returned to pre-pandemic levels,” Chief Executive Michael Miebach said in the company’s earnings release.

Mastercard’s gross dollar volume increased 20% in the third quarter, while cross-border volume rose 52%, both on a local-currency basis. The company saw 25% growth in switched transactions.

Shares are off 1.8% in midday trading Thursday after rising as much as 4.4% earlier in the session.

Mastercard’s earnings call was “upbeat,” wrote Barclays analyst Ramsey El-Assal, but he said that investors may have been looking for more commentary on the future. Rival Visa Inc.
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-1.64%

just began a new fiscal year and offered a full-year outlook, but Mastercard, which is still in fiscal 2021, may be holding off on expansive longer-term chatter until its Nov. 10 investor day.

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“The lack of a F22 view may be weighing modestly on shares in today’s tape,” El-Assal wrote.

Mastercard highlighted continued improvement in cross-border spending during its investor call. Overall cross-border volume during the third quarter reached 97% of 2019 levels, and it was at least 100% of 2019 levels in two of the three months making up the quarter. During the first 21 days of October, cross-border spending hit 105% of 2019 levels.

Cross-border spending occurs between parties originating in different countries from one another, and it is important for payments companies since they can typically get better “yields” or pricing on this type of spending. International travel is one notable driver of cross-border spending, which has been impacted during the pandemic by travel restrictions.

The travel category is recovering, but Mastercard is also seeing sustained growth in cross-border spending unrelated to travel, through transactions in consumer e-commerce, supply-chain purchases, and some cryptocurrency purchases. This portion of cross-border spending was up 27% from 2020 levels in the third quarter, and CFO Mehra sees room for further momentum driven by increasing adoption of omnichannel commerce by merchants and a growing acceptance of digital payments by consumers.

The digitization trend kicked off even before the pandemic, Mehra said, though the COVID-19 crisis helped people build new habits.

“The muscle memory that got built during the pandemic with consumers who had been reluctant to get into e-commerce experiences…is embedded,” he told MarketWatch. “The most difficult thing to do is change consumer behavior and the pandemic helped change consumer behavior.”

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Another notable trend for Mastercard is the growth of contactless payments, which represented 48% of global in-person transactions during the third quarter, up from 45% last quarter. Contactless adoption continues to increase in the U.S., though Mehra still sees “a long way to go” in terms of further building that usage.

One way consumers are using tap payments is in replacement of small cash transactions, Mehra said, giving the example of low-ticket purchases like newspapers or coffee. In other cases, consumers are tapping to pay for each subway ride as they go, rather than loading $20 onto a transit card in advance in a single transaction.

For the fourth quarter, Mastercard expects “mid-20s” percentage growth in revenue, on a generally-accepted-accounting-principles (GAAP) basis, and “mid-teens” growth in GAAP operating expenses, both relative to the prior-year quarter. The current fourth-quarter FactSet revenue consensus of $5.20 billion implies 26.1% growth.

The report comes a day after Mastercard shares logged their worst single-session performance in about a year during a weak trading session for the payments industry. Visa had beat expectations with its Tuesday afternoon report but underwhelmed as analysts discussed their assumptions for the company’s new fiscal year. Fellow fintech player Fiserv Inc.
FISV,
-1.87%

sparked some concerns as well with the outlook its executives discussed Wednesday morning.

Shares of Mastercard have declined 12.4% over the past three months, as the S&P 500
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+0.70%

has risen 3.4%.

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