MasterCard

Mastercard's second-quarter results largely echoed what we saw from Visa and suggest consumer spending is holding at a level that will allow the networks to see solid growth.

Why it matters: Constant currency year-over-year net revenue growth was 12%, in line with the previous quarter. Year-over-year constant currency purchases volume growth came in at 10%, up from 9% last quarter, with the improvement largely driven by better growth domestically. Mastercard's results largely mirrored what we saw from Visa and suggest consumer spending is holding at a healthy level. Constant-currency cross-border volume, excluding intra-Europe transactions (which are priced similarly to domestic transactions), grew 11% year over year during the quarter, down from 12% in the previous quarter. The situation in Iran was a bit of a drag on travel spending, but monthly figures suggest the impact dissipated through the quarter.

The bottom line: We will maintain our $550 fair value estimate per share for the wide-moat company and see shares as about fairly valued. On the positive side, Mastercard continues to see some margin improvement, with adjusted margins up 120 basis points year over year on a net revenue basis. However, year-over-year client incentives growth of 20% on a constant currency basis highlights that margin improvement on a gross revenue basis is much more difficult. Mastercard saw year-over-year constant currency growth of 18% for value-added services, in line with the previous quarter. Visa is outperforming Mastercard on this front at the moment, but we are skeptical that Visa's edge will be maintained.

Our fair value estimate for Mastercard is $550 per share, which equates to 28.0 times projected 2026 earnings, adjusted for one-time expenses.

While revenue declined in 2020 due to the coronavirus, which bled into the start of 2021, growth bounced back quickly, and Mastercard enjoyed outsize growth in the years following the pandemic. We think conditions have now normalized, and we expect the company to maintain growth levels more in line with the prepandemic period, barring any macroeconomic turbulence. We believe that secular trends and improving share should enable Mastercard to maintain strong growth rates over the next five years. We project gross and net revenue to grow at 13% and 12% compound annual growth rates, respectively. We think international markets will increasingly fuel growth, and Mastercard's mix leaves it relatively well positioned.

While margins were materially pressured in 2020, profitability has recovered since, and margins (based on net revenue) are now slightly ahead of the prepandemic level. In the future, we expect operating margins (based on net revenue) to improve from 59% in 2025 to 61% by 2030, based on the scalability of the business. This equates to an annual average improvement of about 30 basis points. On a gross revenue basis, we expect increasing client incentives to result in margins ultimately holding in line with recent levels. Given the company’s history of fines and one-time charges, we include ongoing one-time costs roughly in line with historical averages in our projections, but these costs are excluded from the margin levels above.

We use a weighted average cost of capital of 8.5% in our valuation.

Payment networks such as Mastercard benefit, unsurprisingly, from a network effect. The more consumers that are plugged into a payment network, the more attractive that payment network becomes for merchants, which, in turn, makes the network more convenient for consumers and so on. In our view, this dynamic explains why a handful of networks have come to dominate electronic payments over time, and at this point, Mastercard has reached essentially universal acceptance in most developed markets. While the network effect is the initial and primary driver of economic moats in the space, the highly scalable nature of payment processing leads to sizable cost advantages for large payment networks, which further cements their competitive positions. For the dominant payment networks with global footprints, such as Mastercard, the network effect and resulting cost advantage is strong enough to lead to a wide moat, in our view.

Mastercard’s origin lies in the formation of the Interbank Card Association by a group of banks that acquired Master Charge in 1969 and adopted the company’s current logo. In the decades since, Mastercard has been one of the largest beneficiaries of the ongoing shift toward using electronic payments. During 2025, the company processed almost $9 trillion in purchase transactions. Visa, meanwhile, processes roughly twice as many transactions as Mastercard and leads it in terms of market share in every major global region. However, Mastercard has a similarly commanding lead over any other network and is the only other company with a truly global presence. Mastercard’s global market share for credit and debit cards has been estimated at 29% and 24%, respectively, a level that dwarfs competitors outside of Visa. Mastercard may face some competition in processing domestic transactions, but we think the company‘s global presence is a relatively unique asset that allows the company to process cross-border transactions and charge materially higher fees in this area. We don’t believe that building a new network with a comparable size and reach is realistic over any foreseeable timeline and view Mastercard’s position within the current global electronic payment infrastructure as essentially unassailable.

Mastercard has translated its dominant competitive position into an enviable level of profitability. Operating margins (using net revenue) in 2025 were 59%, and margins have generally trended upward over time due to the scalability of the business. Further, given the relatively asset-light nature of the business, returns on invested capital are multiples above any reasonable estimate of the cost of capital.

Mastercard historically has outperformed Visa in terms of growth. Its smaller size and some leveling in market share between the two could maintain this trend.

There is still plenty of runway for growth in electronic payments. Electronic payments only surpassed cash payments on a global basis a few years ago.

Management is appropriately focused on long-term growth opportunities and not near-term margins.

Mastercard is a distant number-two player in a scalable industry, which could hamper long-term margins.

The oligopolistic nature of the industry makes Visa and Mastercard a target for regulators, and the companies have historically paid some large fines.

New payment options such as stablecoins could steal volumes from Mastercard.