Key Points
Nine-month operating cash flow fell 6% while net income rose 18%, and the amortization of customer incentives jumped 33%.
Buybacks and dividends totaled $14.2 billion through nine months, more than operating cash flow of $11.9 billion, while debt rose about $4.9 billion.
Mastercard (NYSE:MA) grew value-added services revenue 19% in the third quarter, well ahead of the 11% gain in its core payment network. Shares rose about 4% in midday trading. Services are growing faster than the network, and with costs rising slower than revenue, the company widened its margin even as it paid banks more to win their business.
Key Numbers
- Net revenue: about $9.8 billion, up 14% from a year ago
- Value-added services and solutions net revenue: up 19% from a year ago
- Cross-border volume: up 11% excluding currency swings
- Diluted earnings per share (EPS) under generally accepted accounting principles (GAAP): $5.28, up from $4.34
What It Means
The network still grows faster than spending. Gross dollar volume, the total value of purchases and cash withdrawals on Mastercard cards, rose 7%, but network revenue grew faster on more transactions, pricing, and cross-border activity. Cross-border payments carry much higher fees than domestic ones, so cross-border growth lifts revenue more than volume alone would.
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The catch is what Mastercard pays to keep that volume. Rebates and incentives, payments to banks and other customers that come out of net revenue, rose 18%, outpacing network revenue. Those deals win and renew card portfolios, but they mean each new dollar of network revenue costs more to book.
Services is the counterweight. Fraud prevention, authentication, and data tools are sold to banks already on the network, which makes them a natural cross-sell. Total operating expenses rose 11%, slower than revenue, and that gap is what widened the margin.
What to Watch Next
Track whether rebates and incentives continue to grow faster than payment network revenue. If they do, services will need to keep outgrowing the network for margins to keep rising.
Sharice Wells has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool has a disclosure policy.