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Mastercard Keeps Charging Forward

Dan Caplinger, The Motley Fool

In a fast-moving industry like financial technology, it's natural to think that the oldest players in the business would be most likely to fail. With so much invested in its legacy credit and debit card payment systems, Mastercard's (NYSE: MA) sunk costs are immense and have played a major part in bringing the company to the top of the industry. Even as fintech advances at a rapid pace, though, Mastercard has remained at the forefront, with innovative moves to encourage more business and help lead the industry forward.

Coming into Tuesday's first-quarter financial report, Mastercard investors were encouraged by their read on the health of the fintech industry and the card giant's part in it. Mastercard's results were even better than many had expected, and it appears that the payment processing company is taking advantage of every opportunity it can find to stay relevant as a leader in promoting global commerce.

Colored rectangular card with Apple logo in upper left and Mastercard logo in lower right.

The new Apple Card, powered in part by Mastercard. Image source: Apple.

Mastercard gets off to a good start in 2019

Mastercard's first-quarter results sustained its momentum from past periods. Net revenue climbed 9% to $3.89 billion, surpassing the 8% growth rate that investors were looking to see from the card giant. Net income of $1.86 billion was higher by 25% compared to the year-earlier period, and after accounting for some special items, adjusted earnings of $1.78 per share soundly beat the $1.66-per-share consensus forecast among those following the stock.

Mastercard delivered continued fundamental strength in its core business. Gross dollar volume gained 12% in local-currency terms to $1.48 trillion, split exactly 50-50 between credit and debit card transactions. Switched transaction counts rose 17%, matching its pace from the previous quarter, and cross-border volumes showed a 13% local currency boost from year-ago levels. With 2.07 billion Mastercard cards and another 471 million Maestro-branded cards, the company boasted total outstanding cards of 2.54 billion, up 164 million from the first quarter of 2018.

Geographically, Mastercard did much better in the U.S. market, as the strong U.S. dollar wiped out better international growth in local currency terms. Outside the U.S., gross dollar volume was up just 4.5% in dollar terms, while domestic growth came in at 7.6%. Overall, currency impacts cost Mastercard about 6 percentage points of gross dollar volume growth and 4 percentage points of growth in total revenue. Performance across Mastercard's global markets was fairly evenly distributed. U.S. growth in gross dollar volume pushed into double-digit percentages, rising 10.2% from year-earlier levels. Local-currency growth in international markets jumped 16%, but 7 percentage points of adverse currency impacts brought the U.S. dollar-denominated growth figure down to just 9.1%.

Much of Mastercard's bottom-line strength came from renewed cost discipline. Operating expenses fell 5% during the quarter, and even after accounting for some extraordinary items, adjusted costs were higher by just 2% from year-earlier levels. That's particularly impressive given the fact that Mastercard continued to spend money on strategic initiatives and other key investments in its business.

Can Mastercard keep moving ahead?

CEO Ajay Banga celebrated the efforts that Mastercard has made. "We continue to make significant progress," the CEO said, "developing innovative new products with partners like Apple and Goldman Sachs, expanding the geographic footprint of our real-time payment solutions, and announcing several acquisitions to advance our cross-border payments, safety and security, and merchant engagement strategies."

Mastercard also ramped up its stock repurchase volume during the period. The company reported 8.7 million shares of stock purchased during the first quarter, spending $1.8 billion to do so. With another $4.5 billion still authorized for further buybacks, investors have no reason to see any end in sight to Mastercard's ongoing work to reduce its outstanding share count and bolster per-share business metrics.

Mastercard investors responded favorably to the news, and the stock climbed about 1% in pre-market trading following the announcement. Even as signs of a global economic slowdown have begun to surface, Mastercard has remained poised to expand its addressable market and pull a greater share of total transaction volume under its payment processing umbrella.

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Dan Caplinger owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL and Mastercard. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.