Morningstar | Mastercard's Strong Pace Slackens a Bit in 3Q
The pace of Mastercard’s growth slowed a bit in the third quarter but remained quite strong in an absolute sense. We continue to believe the company has a strong and long-lasting growth runway, given the ongoing global shift toward electronic payments and Mastercard’s central position in the global payment infrastructure. We will maintain our $165 fair value estimate and wide moat rating.Excluding an accounting change and currency effects, net revenue grew 14% year over year, driven by a 13% increase in gross dollar volume on a local currency basis. Switched transactions and cross-border volume were up 16% and 17%, respectively, but rebates and incentives also increased.
Growth was tilted internationally, with U.S. volume up 9% year over year and the rest of the world up 15%. We expect this to continue and believe that emerging markets in particular will increasingly provide the next leg of growth for electronic payments.
Management noted that it is alert to the potential for macroeconomic issues to become a headwind, but its review of volume growth in the quarter and in the three weeks since suggests that macro activity remains strong.
Operating margins improved to 59.4% from 57.1% last year. We think global growth in electronic payments and the scalable nature of the business will allow for material and ongoing margin expansion over time, but the pace this quarter was a bit ahead of our long-term expectations.
Mastercard is a technology company in the global payments industry. The company's solutions enabling consumers to use electronic forms of payment instead of cash and checks. The company provides a range of payment solutions and services using its brands, including Mastercard?, Maestro? and Cirrus?. The company is a multi-rail network that provides customers one partner to turn to for their domestic and cross-border payment needs. The company has additional payment capabilities that include automated clearing house transactions. The company also provides offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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