Analyzing Mastercard's Q3 Earnings: To Buy or Keep Your Cool?

Mastercard Incorporated MA recently reported strong third-quarter 2024 earnings, driven by improved transaction volumes and resilient consumer spending. Improving cross-border volumes coupled with strong demand for value-added services favored the results.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The stock is just 0.8% below its 52-week high of $528.84. MA gained 14.6% in the past six months compared with the industry’s 14.4% rise and the S&P 500 Index’s rally of 14.8%. MA is trading above its 50-day and 200-day moving averages, indicating solid upward momentum. Now, let’s look closely at MA’s third-quarter results and long-term prospects before assessing whether to buy, hold or sell the stock.MA’s 6-Month Price PerformanceImage Source: Zacks Investment ResearchHighlights of MA’s Q3 EarningsStrong Top-and-Bottom-Line Performance: Mastercard’s adjusted earnings per share of $3.89 surpassed the Zacks Consensus Estimate by 4.3%, reflecting a 15% year-over-year increase. The net operating revenues rose 13% to $7.4 billion, beating expectations by 1.6%. This growth was driven by increased gross dollar volume, cross-border volumes, and strong demand for value-added services.Robust Outlook: Management projects net revenues to register low-teens growth on a year-over-year basis in the fourth quarter of 2024, while adjusted operating expenses are anticipated to record high-end of low-double-digit growth.Rising Demand & Resilient Consumer Spending: Mastercard’s ongoing investments in cybersecurity, fraud prevention, and personalized insights are meeting substantial consumer demand as users increasingly look for secure, seamless transaction experiences. The company’s innovations, like tap-on-phone technology and open-loop transit payments, highlight its strategic response to the global shift toward digital and contactless payment solutions. Consumer spending remained stable in the quarter, fueled by a strong labor market and moderated inflation.For a detailed analysis, read our blog: Mastercard Q3 Earnings Beat Estimates on Gross Dollar Volume Growth.MA’s Diversification EffortsMastercard boasts a diversified business model in terms of operations. Its value-added services and solutions contributed 37.5% to total revenues in the first nine months of 2024, up from 37% in 2023. Its recent focus on enhancing its value-added services is evident through its updates to the AI-powered Consumer Fraud Risk solution. This would further solidify Mastercard's leadership in payment security and fraud prevention.Additionally, Mastercard's acquisition of Recorded Future for $2.65 billion highlights its commitment to bolstering cybersecurity capabilities. The integration of Recorded Future’s AI-driven threat intelligence will enhance Mastercard’s ability to safeguard payment systems. This acquisition underscores Mastercard’s strategy of expanding its cybersecurity portfolio to meet growing demand.MA’s purchase transactions are geographically diversified, with Europe accounting for 38.6% of the total number, followed by the United States, Latin America and Canada. The company is actively expanding its presence in CEMEA, Latin America, and the Asia-Pacific regions, aiming to capitalize on the ongoing shift from cash to digital payments. By capitalizing on this global transition to digital payment systems, Mastercard is well-positioned to strengthen its market presence across diverse regions and enhance its revenue streams.MA’s Long-Term Growth ProspectsMastercard has strategically leveraged acquisitions and partnerships to expand market reach and enhance product offerings. MA recently announced the acquisition of Minna Technologies, which enhances its value-added services segment by providing advanced subscription management solutions to banking partners and consumers. Mastercard has also recently partnered with companies like Yallo, Fundbot, and Citi. These partnerships and acquisitions underscore its commitment to innovation and global growth. It aims to redeploy its resources in markets with high levels of cash.MA is also enhancing the online checkout experience through tokenization, Click-to-Pay and Payment passkeys. MA’s Cloud Tap on Phone solution allows businesses to use smartphones as contactless payment terminals, streamlining the payment process with cloud technology. It also aims to enhance the in-store checkout experience with Biometrics. Moves like these are expected to drive transaction volumes and enhance user’s trust in MA’s secure payment network.Mastercard bought back 16.5 million common shares in the first nine months of 2024 and another 2 million shares from Oct. 1 to Oct. 28, 2024. The company paid dividends worth $1.8 billion in the first nine months of 2024. With continued strength in its earnings and cash flow growth, MA is expected to continue carrying out shareholder value-enhancing initiatives.However, rising operating expenses continue to weigh on its margins. The metric increased 14.2% year over year in the first nine months of 2024.Estimate Revision Favoring MA StockMA’s 2024 earnings have witnessed an upward estimate revision during the past 30 days. The Zacks Consensus Estimate for current-year adjusted earnings for MA is currently pegged at $14.45 per share, indicating 17.9% year-over-year growth. The consensus mark for 2025 earnings indicates a further 13.7% jump. MA beat earnings estimates in each of the past four quarters, the average surprise being 3.2%. Image Source: Zacks Investment ResearchMA’s ValuationMA stock is trading at a premium compared with its Financial Transaction Services industry. With a forward 12-month Price/Earnings (P/E) ratio of 32.49X, it is above the industry’s average of 25.17X. In comparison, its peers, American Express Company AXP and Visa Inc. V, are trading cheaper at 19.29X and 27.13X, respectively. Image Source: Zacks Investment ResearchFinal Thoughts: Hold MA Stock for NowMastercard’s third-quarter results highlight its strengths and obstacles for investors to consider. Mastercard’s strong growth prospects are evident through its diversified business model and expanding focus on value-added services. The company’s recent upward revisions in earnings estimates suggest a promising outlook.However, its premium valuation compared to the industry and rising expenses may limit its short-term potential. For long-term investors, Mastercard’s strong fundamentals may justify holding the stock, but potential investors looking to add the stock to their portfolios may want to wait for a better entry point.Mastercard currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free Report: 5 Clean Energy Stocks with Massive UpsideEnergy is the backbone of our economy. It’s a multi-trillion dollar industry that has created some of the world’s largest and most profitable companies.Now state-of-the-art technology is paving the way for clean energy sources to overtake “old-fashioned” fossil fuels. Trillions of dollars are already pouring into clean energy initiatives, from solar power to hydrogen fuel cells.Emerging leaders from this space could be some of the most exciting stocks in your portfolio.Download Nuclear to Solar: 5 Stocks Powering the Future to see Zacks’ top picks free today.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mastercard Incorporated (MA): Free Stock Analysis Report Visa Inc. (V): Free Stock Analysis Report American Express Company (AXP): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks