Mastercard Incorporated (NYSE:MA) is well-positioned to exceed earnings expectations for the third quarter of 2023, with results slated for release on October 26, before the market’s opening. Let’s delve into the estimates and factors that indicate a promising performance.
Encouraging Estimates
The Zacks Consensus Estimate for third-quarter earnings per share stands at $3.21, reflecting a robust 19.8% increase from the prior-year figure of $2.68. Notably, the consensus estimate has edged up by a penny over the past week. Projections for third-quarter revenues also look promising, with a consensus estimate of $6.5 billion, indicating a substantial 13.4% upturn from the year-ago reported figure.
Consistent Outperformance
Mastercard has an impressive track record of beating estimates in the last four quarters, delivering an average positive surprise of 3.2%.
Recapping Q2 Earnings
In the previous quarter, the global payment solutions leader reported adjusted earnings per share of $2.89, surpassing the Zacks Consensus Estimate by 1.8%. This robust performance was attributed to strong consumer spending, especially in the travel sector, and an enhanced services suite. A notable upswing in cross-border transaction volumes also contributed to the positive results, although it was partially offset by rising operating costs.
Factors Driving Q3 Performance
Mastercard’s third-quarter revenues are expected to benefit from increased spending in the travel and entertainment sectors. Their Gross Dollar Volume (GDV), which measures the value of transactions on Mastercard-branded cards, is likely to see a positive impact from heightened card usage both domestically and internationally in this quarter.
The Zacks Consensus Estimate for MA’s total GDV suggests a 12.3% rise compared to the prior-year quarter’s reported figure, with their domestic operations estimated to increase by almost 6% year-over-year and international operations by 12%. Strength in Latin American and European operations is expected to drive this growth.
Processed transactions are predicted to rise due to sustained consumer spending and expanding contactless payment initiatives by Mastercard. The Zacks Consensus Estimate for processed transactions indicates a 14.8% increase from the prior-year quarter, with our estimate suggesting a 13.5% boost.
The expansion of cross-border travel is also anticipated to boost Mastercard’s cross-border volumes, with the consensus estimate showing an increase of nearly 21% compared to the previous year. Our model predicts an even stronger growth exceeding 22%. Additionally, we expect domestic assessments and transaction processing assessments to experience a 12.7% and 12.9% year-over-year increase, respectively.
These factors are poised to drive substantial growth for Mastercard in the third quarter, positioning the company for a potential earnings beat. Nevertheless, it’s important to note that the company may have encountered increased costs, higher rebates, and incentives during the September quarter, which could partially offset these positive developments.
Operating costs, in particular, are expected to rise due to higher general and administrative (G&A) costs, which could impact profitability. Total adjusted operating expenses are predicted to increase by 11.6% compared to the prior-year quarter. Moreover, our estimate for payments network rebates and incentives suggests a nearly 20% year-over-year increase, and the company’s interest expense is expected to rise by approximately 19% due to the high interest rate environment.
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