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Earnings Results: Mastercard beats on earnings and cites a rebound in domestic travel spending

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Mastercard Inc. posted surprise growth in revenue Thursday morning while topping earnings expectations, as government stimulus boosted spending and as domestic travel improved.

The company reported first-quarter net income of $1.8 billion, or $1.83 a share, up from $1.7 billion, or $1.68 a share, a year earlier. After adjusting for special items and the impact of equity investments, Mastercard
MA,
-2.16%

earned $1.74 a share, down from $1.83 a share but ahead of the $1.58 a share that analysts surveyed by FactSet had been projecting.

Mastercard’s net revenue for the quarter rose to $4.2 billion from $4.0 billion, while analysts were projecting $4.0 billion.

The company expects a second-quarter revenue growth rate, in the high-20s (percentage range), or in the low-to mid-20s on a currency-neutral basis and excluding acquisitions. The company also forecasts an operating-expense growth rate in the low-30s, or in the low-20s excluding the impacts of currency and acquisitions.

The implied margin outlook came up a bit light relative to expectations, wrote Barclays analyst Ramsey El-Assal, as Mastercard increases spending on areas like cybersecurity and its multi-rail payments approach.

“Despite the Q2 margin miss, we are encouraged by today’s beat and ongoing momentum in the business…and would remain buyers on today’s weakness,” he wrote.

Shares are down 2.4% in Thursday afternoon trading.

The company reported an 8% increase in gross dollar volume (GDV) in the latest quarter, while cross-border volume fell 17% amid continued pressure on international travel. Switched transactions rose 9% in the quarter.

“We saw particular strength in debit, primarily driven by fiscal stimulus and share gains,” Chief Executive Michael Miebach said on Mastercard’s earnings call. “In terms of how people are spending, e-commerce continues to be strong and we’re seeing improvement in card-present spending.”

While travel has been sluggish, Miebach said that there has been “recent improvement” in domestic travel and that he expects domestic travel “to improve progressively throughout the year in countries with strong vaccination programs.”

“International travel should start to open on a select basis in the second half of the year between countries with strong vaccination programs and/or low case rates,” he continued.

A recent focus for Mastercard has been trying to win travel- or airline-focused co-branded arrangements, Chief Financial Officer Sachin Mehra told MarketWatch, with cards that are “heavily weighted toward people using the products for travel.” The company’s recent momentum in this area makes it “well positioned for travel coming back,” he argued.

More generally, Mastercard argues that it’s been winning share in the debit market with recent wins contributing to the company’s debit growth. “The reality is that ones which we talked about many quarters ago are now coming to fruition,” Mehra said, since it can take time for issuers to convert cards over to Mastercard without causing disruption for cardholders.

In the U.S., overall GDV rose by 14%, with debit volumes growing 26% while credit volumes fell 1%. Outside the U.S., GDV increased 5%, with debit volumes rising 12% and credit volumes declining 2%.

Miebach noted on the earnings call that discretionary spending in areas like travel is starting to rally so it’s “reasonable to expect that a lot of that is going to drive credit growth back up.”

Shares of Mastercard have gained 23% over the past three months as the S&P 500
SPX,
+0.51%

has risen 13%.

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