Mastercard Incorporated (MA) Earnings

Management highlights

- **Strategic Partnerships & New Product Launches** - Partnered with Santander (UK) to accelerate cross-border spend and Bancolombia to optimize small business/commercial portfolios, driving higher payments volume - Launched MasterCard Threat Intelligence (for payment fraud) built on the Recorded Future acquisition), which identified over 7 million fraudulent card testing transactions across 192 countries in its first three quarters, preventing an estimated $172 million in fraud losses - Launched the new AI-powered MasterCard Merchant Trust Services to identify fraudulent merchants and reduce fraud/disputes, and launched the MasterCard Advantage Partner Program which already has over 200 partners to expand distribution reach - Launched MasterCard Agent Pay for Machines, the only existing network protocol enabling machine-to-machine payments for low-value digital services such as APIs, compute, data, and content, with over 30 industry leaders participating at launch - Expanded crypto and stablecoin partnerships, expanding relationships with BitGet and Kraken, with crypto co-branded volume more than tripling over the last two years - **Future of Commerce Innovation** - Positioned as a leader in agentic commerce, noting that existing card infrastructure with added capabilities (tokenization, verifiable intent, zero liability, dispute resolution) will dominate most consumer and commercial agentic use cases - Identifies machine-to-machine microtransactions as a major new addressable market expansion, with MasterCard as a first mover with trusted infrastructure - Believes stablecoins have clear utility for B2B and P2B flows, and MasterCard will act as a trusted interoperable layer supporting multiple stablecoins, chains and fiat currency operations - The open USD standard for stablecoins is scheduled to go live across MasterCard's network later in 2026, and the BVNK acquisition (expected to close in Q3 2026) will add enterprise-grade payment orchestration, licensing and connectivity to support digital asset services - **Core Operating Metrics** - Worldwide gross dollar volume (GDV) increased 8% year-over-year: 6% in the U.S. (10% credit growth, 1% debit growth; 8% U.S. debit growth excluding the completed Capital One debit portfolio migration) and 9% outside the U.S. (9% credit growth, 10% debit growth) - Cross-border volume increased 12% globally, with cross-border card-not-present ex-travel growing 20%, supported by improvements in Middle East travel impacts and increased U.S. dollar availability for cross-border spend in Venezuela (where MasterCard is the market leader) - Switch transactions grew 9% year-over-year, contactless penetration reached 80% of in-person switched purchase transactions (up 5 percentage points year-over-year), token penetration exceeded 40% of all switched transactions, and total global issued MasterCard and Maestro cards grew 5% to 3.7 billion - Total adjusted operating expenses increased 10% currency-neutral, with growth driven by strategic investments in infrastructure hardening, geographic expansion, and product innovation - Net income grew 16% and EPS grew 19% year-over-year to $5.04, with a $0.14 contribution from share repurchases. MasterCard repurchased $4.9 billion of stock in Q2, with an additional $700 million repurchased through July 27 - **Business Model Strength** - Management highlighted the resilience of the diversified business model, with Q2 results beating expectations driven by lower-than-anticipated Middle East conflict impacts, upside from Venezuela, and strong VAS demand - 60% of VAS net revenue is network-linked, creating natural synergies and a virtual cycle of more customers, higher service adoption, and higher contract value that drives expanding yields

Guidance

- For Q3 2026: Management expects year-over-year currency-neutral net revenue growth (excluding inorganic activity) to land at the high end of the low double digits range, with a 0.5 percentage point foreign exchange headwind and minimal inorganic impact. Operating expense growth (currency-neutral, excluding inorganic activity and special items) is expected to be in the low double digits range, with a 0.5 percentage point inorganic headwind and a 0 to 0.5 percentage point foreign exchange tailwind. A $125 million non-operating interest expense is expected related to June bond issuance, and the non-GAAP tax rate is projected to be 20-21%. - For full year 2026: Management maintains the prior net revenue growth guidance range (high end of low double digits, currency-neutral excluding inorganic activity) but now expects results to land higher within the range due to stronger-than-expected first half performance. Full year net revenue will see a 1 percentage point foreign exchange tailwind with minimal inorganic impact. Full year operating expense growth is expected to remain in the low double digits range (currency-neutral excluding inorganic and special items), with a 0.5 to 1 percentage point foreign exchange headwind and minimal inorganic impact. The non-GAAP tax rate is expected to be 20-21% for the second half. The BVNK acquisition closing (expected Q3 2026) is fully incorporated into current guidance with minimal expected impact on full year net revenue.

Segment performance

MasterCard reported Q2 2026 results on a currency-neutral basis: 1. **Payment Network**: Net revenue grew 8% year-over-year, driven by domestic and cross-border transaction/volume growth and pricing. This segment contributed approximately 60% of total net revenue, with 60% of Value Added Services and Solutions (VAS) revenue also linked to the payment network. Key metrics: domestic assessments up 10% (vs 8% GDV growth), cross-border assessments up 20% (vs 12% cross-border volume growth), transaction processing assessments up 12% (vs 9% switch transaction growth), other network assessments reached $326 million for the quarter. 2. **Value Added Services and Solutions**: Net revenue increased 18% year-over-year, with minimal drag from dispositions. Growth was driven by strong demand for security solutions, consumer acquisition and engagement, digital and authentication services, and business and market insights, plus favorable pricing. This segment contributed approximately 40% of total net revenue, with 40% of VAS revenue is non-network linked.

Risks & headwinds

- Management noted ongoing uncertainty from geopolitical tensions (including the Middle East conflict) and related energy price volatility, as well as general macroeconomic uncertainty including unemployment and inflation trends. No material operational failures were discussed during the call.

Analyst Q&A

• Q: Do agentic commerce use cases require stablecoins, or can traditional MasterCard credentials meet all stablecoin use cases? What unique value does MasterCard pursue with stablecoins? /

  A: Most consumer and B2B agentic commerce use cases can be fully supported by existing card networks, which already offer the reach, user experience and protections that all parties need. MasterCard's additional agent pay capabilities (like verifiable intent for transaction disputes) make cards well-positioned to prevail in agentic commerce. For high-velocity machine-to-machine microtransactions, alternative settlement rails including stablecoins may be used, and MasterCard's protocol supports multiple settlement options. Stablecoins have clear utility in B2B and P2P flows, and MasterCard acts as a trusted interoperable layer supporting multiple coins and blockchains, a role that will be strengthened by the upcoming BVNK acquisition. (456 characters)

• Q: What drove the Q2 cross-border growth acceleration, and should we expect growth to moderate? Did the World Cup impact results? /

  A: The acceleration came from two main factors: first, cross-border travel outbound from impacted GCC countries in the Middle East recovered as conflict impacts moderated, supported by increased airline capacity. Second, increased U.S. dollar availability in Venezuela (where MasterCard is the market leader) drove strong growth in cross-border card-not-present ex-travel spend. Both trends have held up well entering July, and there is no expectation of a sharp moderation in growth. (398 characters)

• Q: What is the upside for MasterCard from growing cybersecurity demand spurred by AI adoption? /

  A: AI frontier models have amplified cybersecurity and fraud risks, increasing board and C-suite focus on cyber protection, which is a strong market tailwind for MasterCard. MasterCard has expanded its portfolio beyond payments fraud to cover identity and full cybersecurity, strengthened by the Recorded Future acquisition. The business benefits from natural synergies: existing customer relationships from fraud services create a natural growth path for expanded cyber offerings, and AI helps accelerate vulnerability identification that MasterCard shares across its global customer ecosystem, creating a self-reinforcing growth flywheel tied to transaction volume. (472 characters)

• Q: Why has European purchase volume growth decelerated, and how should investors think about the region's growth outlook? /

  A: The deceleration is largely a lapping effect: Q2 2024 saw very strong growth from large new portfolio wins (including Santander, NatWest and Unicredit), and the current lapping of that strong year-ago period creates slower comparative growth. MasterCard focuses on profitable, high-yield volume growth rather than chasing unprofitable share just for volume's sake, a strategy that supports sustainable long-term growth in the region. The core European business continues to perform well and MasterCard remains competitively positioned with deep regional roots. (419 characters)