10-QPeriod: Q2 FY2017

Mastercard Inc Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 27, 2017For Securities:MA

Summary

Mastercard Inc. reported a strong second quarter and first half of 2017, demonstrating robust revenue growth and improved profitability. Net revenue increased by 13% for both the three and six-month periods, driven by strong performance in domestic and cross-border transactions, as well as strategic acquisitions. The company also saw significant growth in switched transactions and gross dollar volume, indicating expanding network activity. Despite increased operating expenses, largely due to investments in strategic initiatives and acquisitions, operating income and net income saw substantial year-over-year increases, reflecting efficient operations and disciplined cost management. Key financial highlights include a 24% increase in diluted earnings per share for the quarter and a 19% increase for the first half. Mastercard continued to return value to shareholders through share repurchases and dividends, demonstrating a commitment to capital allocation. The company's acquisition of VocaLink is a significant strategic move to diversify its revenue streams into ACH payments, positioning it for future growth in a rapidly evolving payments landscape. Investors can be encouraged by the consistent top-line growth and expanding operational efficiency, even as the company navigates ongoing legal and regulatory considerations.

Financial Highlights

53 data points
Beta

Revenue

$3.05B

Net Income

$1.18B

38.6% Net Margin

EPS (Diluted)

$1.10

Total Assets

$19.84B

Cash & Equivalents

$5.18B

Free Cash Flow

$1.27B

Financial Statements
Beta
Revenue$3.05B
Operating Expenses$1.40B
Operating Income$1.65B
Interest Expense$39.00M
Net Income$1.18B
EPS (Basic)$1.10
EPS (Diluted)$1.10
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.07B

Key Highlights

  • 1Net revenue grew 13% for both the three and six months ended June 30, 2017, compared to the prior year periods, reaching $3.05 billion and $5.79 billion respectively.
  • 2Diluted earnings per share (EPS) saw significant increases of 24% for the quarter ($1.10) and 19% for the first half ($2.09), demonstrating strong bottom-line performance.
  • 3Switched transactions increased by 17% and gross dollar volume (GDV) on a local currency basis increased by 6% and 5% for the three and six-month periods, respectively, indicating healthy underlying transaction growth.
  • 4Cross-border volume experienced strong growth of 14% and 13% for the three and six-month periods, respectively, highlighting the increasing global usage of Mastercard's network.
  • 5Operating expenses increased by 7% and 9% for the periods, which included investments in strategic initiatives and acquisitions, but the company maintained a strong operating margin of 54.1% for the quarter and 54.6% for the half.
  • 6Mastercard repurchased approximately $1.89 billion of its Class A common stock and paid $474 million in dividends during the first six months of 2017, underscoring its capital return strategy.
  • 7The acquisition of VocaLink is a key strategic development, expected to add ACH payment capabilities and diversify the company's revenue streams beyond its core card network business.

Frequently Asked Questions

Mastercard reported a 13% increase in net revenue for the three months ended June 30, 2017, reaching $3.05 billion, compared to $2.69 billion in the same period of 2016. This growth was driven by increases across its revenue categories and the impact of acquisitions, partially offset by higher rebates and incentives.

Mastercard demonstrated strong profitability, with net income increasing by 20% to $1.18 billion for the second quarter of 2017 and by 16% to $2.26 billion for the first six months of 2017, compared to the prior year periods. Diluted earnings per share also rose significantly, by 24% for the quarter to $1.10 and by 19% for the first half to $2.09.

Operating expenses increased due to continued investment in strategic initiatives, the impact of acquisitions (such as VocaLink), and higher foreign exchange activity losses. Specifically, general and administrative expenses rose, partly driven by personnel costs related to supporting growth initiatives and new hires, as well as data processing and telecommunications costs.

The acquisition of VocaLink Holdings Limited is a significant strategic move for Mastercard. It diversifies the company's revenue streams by adding automated clearing house (ACH) payment capabilities to its existing card-based business, positioning Mastercard to capture more payment flows beyond traditional card transactions.

Mastercard is actively involved in various legal and regulatory proceedings, particularly concerning interchange fees and acceptance practices. The company has accrued liabilities for certain known settlements, such as the U.S. merchant class litigation and Canadian merchant litigation. While these matters can create uncertainty and potential financial impact, Mastercard believes its reserves represent its best estimate of probable liabilities for certain ongoing cases and continues to monitor these situations.