Mastercard Inc Q3 FY2024 earnings call

• Strong results across all business aspects, with net revenues up 14% and adjusted net income up 13% in Q3 on non-GAAP currency-neutral basis. - Announced two planned acquisitions: Recorded Future and Minna Technologies. - Healthy consumer spending with strong cross-border volume growth of 17% year-over-year on local currency basis and value-added services and solutions net revenue up 19% on currency-neutral basis. - Focus on digital shift, including doubling acceptance over five years, tap-on-phone live in over 110 markets, and investments in tokenization and pass keys. - Progress in commercial payments with partnerships like Yallo and Fundbot, and in disbursements/remittances with integrations like Citi's cross-border payments network. - Gaining carded market share through various partnerships and agreements globally. - Strong growth in Latin America with Q3 year-to-date GDV up 19% on local currency basis and local bank partnerships. - Value-added services and solutions growth, including cybersecurity with Recorded Future acquisition, subscription economy with Minna Technologies, personalization with Personalization Breeze, and open banking enhancements.

In the third quarter, net revenues were up 14%, and adjusted net income increased 13% on a non-GAAP currency-neutral basis. Payment network net revenue increased 11% primarily driven by domestic and cross-border transaction and volume growth, including growth in rebates and incentives. Value-added services and solutions net revenue increased 19% due to strong demand for consulting and marketing services, scaling of fraud and security, identity and authentication solutions, and pricing. Worldwide gross dollar volume (GDV) in Latin America was up 19% year-to-date on a local currency basis. Card present growth was aided by increased contactless penetration, with contactless representing approximately 70% of all in-person switched purchase transactions. Globally, there are 3.4 billion Mastercard and Maestro-branded cards issued.

• Q4 2024 net revenue growth expected in low-teens range on currency-neutral basis excluding acquisitions. - Q4 operating expense growth expected in high end of low double-digit range on currency-neutral basis excluding acquisitions and special items, driven by higher spending in advertising and marketing. - Expect an expense of approximately $85 million in Q4, assuming prevailing interest rates and debt levels continue. - Non-GAAP tax rate expected to be approximately 17% for Q4 based on current geographic mix, with clarity on Pillar Two global minimum tax rules affecting Singapore incentive grant starting 2025.

• Competitive environment which may require incentivizing customers, impacting incentives and margins. - Macroeconomic uncertainties that could affect consumer spending and business activity, potentially impacting financial results. - Regulatory changes, such as Pillar Two global minimum tax rules, which could affect tax rates and overall financial performance.

Q: Quick question on the U.S. volume uptick, regarding consumer behavior in a lower-rate environment A: Sachin Mehra noted the consumer continues to be healthy with positive trends, but cautioned about one-time items like calendarization and social security payment timing in the first four weeks of October, while emphasizing overall consumer spending strength with strong employment and confidence Q: Question on tokenization, penetration, growth, and benefits to Mastercard’s P&L A: Sachin Mehra explained tokenization is a cutting-edge technology with billions of transactions, providing security benefits leading to higher adoption, higher conversion rates for merchants, and driving revenue growth for Mastercard Q: Question about Mastercard value-added services, specifically cybersecurity, and how it's sold to clients A: Michael Miebach stated cybersecurity is a significant share of value-added services due to digitization trends, with solutions including decision intelligence boosted by Gen AI, RiskRecon acquisition, and Recorded Future subscription-based threat intelligence service, sold beyond transaction-related services Q: Question on volume acceleration in Europe, macro in the region, and potential for further share gains A: Sachin Mehra mentioned Europe is an important region with improving macroeconomic trends, positive consumer confidence, low unemployment, and Mastercard continuing to win share through conversions and focus on secular opportunities and market share growth Q: Question about incentives, rising incentives, and renewals pushing incentives higher A: Sachin Mehra stated the market is competitive, and while incentives may be needed to win volume, the playbook remains the same with competing, incentivizing, winning volume, and optimizing portfolios to drive net value yield Q: Question on Mastercard Move, cross-border mix, and accounting for revenues A: Sachin Mehra explained Mastercard Move is a differentiated proposition with over 40% transaction growth in Q3, and Michael Miebach noted card-based domestic activity sits in payment network, while cross-border activity on non-card rails is in value-added services and solutions Q: Question on B2B and commercial volumes, acceleration, and tools/capabilities A: Michael Miebach highlighted strong growth in commercial with 11% growth in Q3, seeing momentum with digital-minded treasurers, partnerships with Oracle and SAP, and virtual card benefits providing working capital, expecting continued growth in commercial as a significant driver Q: Question on Mastercard being better than competitors in VAS when presenting to issuers or merchants A: Michael Miebach stated value-added services and solutions are a differentiator with two powerful trends: security in digitizing world and data insights for engaging customers, with solutions building on each other to provide end-to-end solutions to drive customers' top line Q: Question on Q4 outlook and what carries into 2025 A: Sachin Mehra mentioned leap year effect, share wins like Wells Fargo and citizens migrating onto Mastercard, which will lap off in 2025, and lapping effect of pricing actions taken in 2024 Q: Question on China performance relative to expectations A: Sachin Mehra stated Mastercard has a unique single-use card proposition in China with full global and increasing domestic acceptance, investing in acceptance, and seeing it as a significant secular opportunity despite investment and time required Q: Question on price and potential for pricing increases A: Sachin Mehra stated philosophy of investing in innovation to deliver value, with pricing tied to realizing value from investments, balancing rebates/incentives in competitive market to achieve net pricing Q: Question on DOJ antitrust suit against Visa and potential opportunity for Mastercard A: Michael Miebach stated Mastercard competes by investing in products and solutions, and sees opportunity in competitive market regardless of Visa's legal/regulatory issues, continuing to focus on customer needs and product investments Q: Question on multi-rail strategy and attaching value-added services to other networks A: Michael Miebach noted opportunity in cybersecurity space for non-Mastercard transactions, as everyone needs security solutions, and data analytics/services are scheme-agnostic, allowing application to non-Mastercard brand and transactions to diversify and pull in new customers