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Mastercard's (MA) Q2 Earnings Top on Steady Domestic Spending

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Mastercard Inc.’s (MA - Free Report) second-quarter 2021 earnings of $1.95 per share beat the Zacks Consensus Estimate by 13.37%. The same was up 43.3% year over year, courtesy of higher consumer spending.

This world’s leading payment network company’s revenues of $4.5 billion surpassed the Zacks Consensus Estimate by 3.4% and were also up 31% on currency-neutral basis.

Mastercard Incorporated Price, Consensus and EPS Surprise

Mastercard Incorporated Price, Consensus and EPS Surprise

Mastercard Incorporated price-consensus-eps-surprise-chart | Mastercard Incorporated Quote

The year 2020 was a harsh period for the company as its revenues suffered a decline in overall spending by consumers. Online payment amid a surge in e-commerce was a savior.

Payment Volumes Grow

This year saw a recovery for the company as pent-up demand, high savings, government stimulus money and a better employment scenario allowed people to spend more. One eye sore was the subdued cross-border travel, which too showed a rebound in the second quarter as international economies opened up. In fact, other companies in the payments space including the likes of Visa Inc. (V - Free Report) , American Express Co. (AXP - Free Report) and Discover Financial Services (DFS - Free Report) also emerged with flying colors this reporting cycle, courtesy of people using their cards more frequently.

Evidently, gross dollar volume (represents the aggregated dollar amount of purchases made and cash disbursements obtained with MasterCard-branded cards) rose 33% to $1.9 trillion. Cross-border volumes (a key measure that tracks spending on cards beyond the issuing country) grew 58% on local-currency basis.

Switched transactions, which indicate the number of times a company’s products were used to facilitate transactions, were up 41% year over year. This shows that customers used the company’s cards more frequently in the quarter.

Rebates and incentives grew 49%, driven by higher growth in volume and transactions, and new and renewed deals.

Other revenues grew 37% year over year.  This  included a 9% increase on acquisitions. Remaining growth was driven, primarily by the company’s Cyber & Intelligence and Data & Services solutions. Adjusted operating margin of 53.2% was up 100 basis points year over year.

As of Jun 30, 2021, the company’s customers issued 2.9 billion Mastercard and Maestro-branded cards.

During the quarter, the company acquired Ekata, a digital identity verifier, for $850 million. The acquisition will bolster the identity verification capabilities of the former to protect merchants and consumers from possible frauds.

Our Take

Mastercard with a market capitalization of $393 billion is poised for strong growth owing to a rapid shift from cash to the digital modes of payment, which are mostly preferred by the next-gen consumers. Also, the coronavirus episode prompted the older generation to adopt the digital method, given that it is so very flexible, easy and secure. Thus, the transition to digital seems almost permanent, even in the post pandemic world.

Mastercard executed several acquisitions, which helped it expand the addressable markets, drive new revenue streams and strengthen its core product solutions. Investment in technology keeps Mastercard in the forefront of the rapidly-evolving payments industry.

The company is well-poised to gain from consistent cash-generating abilities from operations on the back of growing business volumes. Its strong capital position boosts investment in business and shareholder value via share buybacks and dividend payouts.

Zacks Rank

Mastercard carries a Zacks Rank #3 (Hold), currently. You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.