'Nothing spooky here': Mastercard bullish on strong spending

Andrew Harrer/Bloomberg

UPDATE: This article includes comments from executives during the company's earnings call. 

Mastercard is confident that consumer and commercial strength will hold up despite economic challenges, creating momentum that will extend into 2025. 

Commercial spending in the third quarter was up 11% year over year on a currency neutral basis, which was higher than growth in consumer spending on Mastercard's network, the card network reported Thursday. Healthy spending, coupled with increases in payment volume and value-added services attachment, buoyed top-line revenue in the three months ended Sept. 30.

"Nothing spooky here," Mastercard CEO Michael Miebach said Thursday morning on a call with analysts. "The macroeconomic environment remains supportive and continues to underpin the strength in consumer spending. The labor market remained strong, even if slightly below historically tight levels and inflation has moderated, albeit at various levels, across categories and countries." 

Mastercard's revenue rose 13% in the third quarter, landing at $7.4 billion, up from $6.5 billion a year ago and ahead of analysts' expected $7.3 billion, according to S&P Capital IQ. 

Net income tallied $3.3 billion, or $3.53 a share, up from $3.2 billion, or $3.39 a share, in the year-ago period. Analysts had expected $3.3 billion, or $3.64 a share. Total operating expenses rose 25% in the quarter, including a restructuring charge and litigation provisions.

Adjusted earnings were $3.89 a share, above analysts' estimates of $3.75 a share according to S&P Capital IQ.

Payment network revenue jumped 10%, with a gross dollar volume increasing 10% and cross-border volume increasing 17% on a local currency basis. Switched transactions grew 11%. 

Notably, MasterCard Move, the company's cross-border, real-time payments solution, saw a 40% increase in Q3, Miebach said. Mastercard this month inked a global payments partnership with Citigroup that allows the mega-bank to connect with its Mastercard Move product to move money domestic and cross-border to bank accounts, prepaid debit cards, mobile wallets and cash-access locations in a few seconds.

Value-added services revenue was up 18%, driven primarily by growth in "underlying key drivers," strong demand for consulting and marketing services, and scaling of fraud, security, identity and authentication solutions, Mastercard said.

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"We are investing in new products to further expand our addressable market and address the needs of our customers," Miebach said on the call, pointing to the planned acquisitions of Recorded Future, a cybersecurity firm it bought in September for $2.7 billion, and Minna Technologies, a subscription insights company. 

"Subscriptions are everywhere: Delivery, entertainment, shopping, software, health care and much more. They play a big role in people's lives and are supported by and help grow digital payments," Miebach said. "With that comes an increasing demand for more transparency and control from consumers as well as regulators. That's why we have agreed to acquire Minna Technologies; their payment scheme agnostic services go beyond insights." 

Mastercard's Chief Financial Officer Sachin Mehra was positive on the company's growth outlook for the next quarter, but executives declined to comment on its 2025 outlook until its investor day, which will be next month. 

Net revenue growth is expected to be at the low-teens range on a currency neutral basis, excluding acquisitions, Mehra said, adding acquisitions are forecasted to have a minimal impact of this growth rate. From an operating expense standpoint, Mastercard expects  operating expense growth to be at the high end of a low-double digit range versus a year ago. 

The results are comparable to rival Visa's third-quarter earnings and follow a strong second quarter, which was somewhat overshadowed by an interchange fee deal with merchants that fell apart when a federal judge blocked it. 

Mastercard also said last quarter it planned to lay off about 3% of its staff by September despite the fact that it reported earnings results that beat analysts' estimates and was upbeat on consumer spending. Executives made no mention of the layoffs on the call. 

Mastercard was busy in the third quarter. The payment card processor in July named more partners in its push for open banking with the addition of nine international fintech startups to its Start Path Open Banking and Embedded Finance accelerator program. 

In August, the company partnered with the Medical Tourism Association to provide virtual card technology for arranging treatment, booking travel and making payments.