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Morningstar | Mastercard Performance Unaffected by Threats of Trade Wars and Geopolitical Risks

Wide-moat Mastercard continued its strong performance during its second quarter. The company reported net revenue growth of 20%, while GAAP EPS climbed 36%. However, we’ll remind investors that this growth was affected by new revenue recognition rules that require Mastercard to book revenue and expenses sooner, otherwise revenue growth would have been 4% lower. Excluding adjustments for currency, net revenue grew 18%, while EPS soared 48% from the previous year. We’ll be making adjustments to our model in light of the new accounting standard, but do not expect that to result in any material changes to our fair value estimate. However, we are increasing our fair value estimate to $164 per share from $156, but this is mostly attributable to an increase in the time value of money.

Throughout the world, Mastercard is enjoying healthy growth in transaction volume. Worldwide gross daily volume grew 14% from the previous year, while cross-border transaction volume advanced 19% year over year. However, Mastercard’s net revenue growth of 18% does represent a deceleration from the previous quarter as the company’s rebates and incentives increased 21% from the previous year. This doesn’t greatly concern us, as Mastercard’s previous quarter benefited from customer signings that were likely pushed into this quarter. In addition, Mastercard provided commentary on transaction volume for the first three weeks of July. It would appear the global economy hasn’t been noticeably affected by the threat of trade wars or geopolitical worries. Given this, excluding currency the company has not made any material changes to its full-year 2018 forecast.

Unlike main competitor Visa, Mastercard provided significantly more commentary on the macroeconomic environment and geopolitical risks facing the world’s consumers. The U.S. consumer remains strong, with quarterly spending up 4.7% from the previous year. However, management did remark there was some deceleration in consumer spending in the United Kingdom. Mastercard remains concerned about foreign exchange volatility, especially within Brazil. However, except for a few areas, it would appear that these concerns have had limited impact on the global economy. Consumers continued to spend, and in doing so, Mastercard continues to benefit.