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Mastercard Stock Soars on Stunning Q3 2018 Results

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Third-quarter performance

Mastercard (MA) stock rose ~3% in premarket trading on October 30 following its announcement of its impressive third-quarter results.

The payment-processing company’s adjusted EPS jumped 33% YoY (year-over-year) to $1.78, surpassing analysts’ consensus estimate of $1.68.

Mastercard’s robust bottom line growth was mainly the result of higher revenue and lower taxes. On a YoY basis, Mastercard’s third-quarter revenue rose 15% to $3.9 billion primarily driven by double-digit growth in its gross dollar volumes, cross-border volumes, and switched transactions. Its revenue also came in ahead of analysts’ consensus estimate of $3.87 billion.

During the third quarter, Mastercard’s gross dollar volumes, cross-border volumes, and switched transactions witnessed YoY increases of 13%, 17%, and 16%, respectively.

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An improving US economy as reflected by the sustained rise in the country’s GDP has benefited Mastercard. The US economy witnessed 4.2% growth in its second-quarter GDP. A healthy job market, steady wage growth, robust consumer confidence, and a lower tax rate have driven its digital payment volumes. As Mastercard earns fees from digital transactions made through its platforms, these factors are driving its top and bottom line results.

Furthermore, a lowered tax rate due to the enactment of the Trump administration’s Tax Cuts and Jobs Act late last year also drove the company’s third-quarter earnings. Mastercard’s adjusted effective tax rate for the quarter was 19.1%, down 6.9% from its rate of 26% in the third quarter of 2017. The company’s total adjusted operating expenses rose 9% YoY to $1.6 billion mainly due to its sustained focus on investing in growth initiatives.

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Management’s comments

During Mastercard’s third-quarter earnings release, its president and CEO, Ajaypal Banga, said, “We had another very strong quarter, delivering solid top- and bottom-line growth. Our business wins and new partnerships, strengthened by our differentiated services offerings, are helping drive our global momentum.” 

Banga added, “We are continuing to invest for the long term with a focus on secure and convenient solutions that will help us grow our core business and address new payment flows.”

Peers’ performances

Most leading payment-processing companies (IPAY) have announced their third-quarter results. PayPal’s (PYPL) and American Express’s (AXP) third-quarter EPS of $1.88 and $0.58 represent YoY rises of 25.3% and 26%, respectively. Mastercard’s rival Visa (V) reported fiscal 2018 fourth-quarter adjusted EPS of $1.21, up 34% YoY.

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