Mastercard Inc (MA)

• Mastercard's Value-Added Services (VAS) are Differentiators Driving Revenue Growth: The company's focus on security solutions and data insights in a digitizing world has made VAS a true differentiator for at least 7 years, helping Mastercard win business and boost revenue and yield. -
• Strong Volume Growth and Market Share Gains in Europe: Mastercard is experiencing volume acceleration in Europe, supported by improving macroeconomic conditions and specific wins like the conversions of UniCredit and Deutsche Bank portfolios, leading to further share gains in a region with a tremendous secular opportunity. -
• Significant Growth Opportunity in Commercial Payments: Mastercard sees commercial payments as a significant secular opportunity, with 11% currency-neutral growth in commercial in Q3. The company is leveraging partnerships with back-office systems like Oracle and SAP, and catering to a digitally minded generation of treasurers, expecting commercial payments to be a tremendous growth driver. -

• U.S. volume growth may be driven by one-time factors, such as the timing of Social Security payments and calendar effects, rather than sustainable consumer strength. Sachin Mehra cautioned that there were "certain onetime items such as the calendarization impact... and the timing of social security payments" that caused a bump in U.S. metrics. -
• Minimal net pricing opportunities due to competitive pressures, as Mastercard operates in a "very competitive market" where it must offer rebates and incentives to win portfolios, resulting in "minimal net pricing" gains. This could limit revenue growth from pricing strategies. -
• Expansion into China requires significant investment and time, with challenges in increasing acceptance infrastructure. Sachin Mehra stated that "without acceptance...that's going to be hard to do" and emphasized that it "will take investment... it will take time." This may delay returns and impact profitability in the Chinese market. -

1. Value Added Services and Cybersecurity Growth
   Q: How is Mastercard's Value Added Services, specifically cybersecurity, contributing to growth?
   A: Michael Miebach stated that security solutions are a significant share of their Value Added Services due to the increasing need to secure digital transactions, a tremendous underlying secular trend and huge addressable market. They are investing in solutions like Decision Intelligence, enhanced with GenAI, leading to up to a 20% lift. With the recent Recorded Future acquisition, they are expanding into Threat Intelligence, offering subscription-based services beyond transactions, which helps drive revenue growth. - , -

2. Tax Rate Impact from Global Minimum Tax
   Q: Should we expect around a 20% tax rate next year due to global minimum tax?
   A: Sachin Mehra explained that with greater clarity on the implementation of the Pillar 2 global minimum tax, the impact of not getting the incentive grant in Singapore this year would have been about 4 percentage points increase on their tax rate. While he couldn't specify the exact tax rate for next year, this suggests a potential rise to around 20%. -

3. Consumer Spending Trends and U.S. Volume Uptick
   Q: Is the U.S. volume uptick due to stronger consumer spending?
   A: Sachin Mehra noted that the consumer continues to be healthy, with spending in a very healthy manner. The uptick also reflects certain one-time items like calendarization impact and timing of social security payments, but overall, there is continued confidence from consumers, supported by strong employment and interest rate trends. -

4. B2B and Commercial Volume Growth
   Q: How is Mastercard addressing B2B and commercial payment growth?
   A: Michael Miebach highlighted that commercial payments are a tremendous secular opportunity, with 11% currency-neutral growth in Q3. They are investing in solutions with partners like Oracle and SAP to integrate into companies' back-office systems, catering to a digitally minded new generation of treasurers. Issuing partners are increasingly interested due to benefits like 30 days of working capital from virtual cards. -

5. Impact of DOJ Antitrust Suit Against Visa
   Q: Does the DOJ suit against Visa present an opportunity for Mastercard?
   A: Michael Miebach acknowledged the headlines but stated they can't comment on the allegations. Mastercard continues to compete in a competitive market by investing in their products and solutions. They see a tremendous opportunity ahead, which is unrelated to these headlines, and will focus on helping customers with their needs. -

6. Progress in China Market
   Q: How is Mastercard performing in China after recent developments?
   A: Sachin Mehra reported that Mastercard is now live in China as of May, offering a unique single-use card usable both domestically and cross-border. They're investing in acceptance across the country, supported by government interest in linking China's economy more closely to the global economy. Although it's a huge economy and a secular opportunity, it will take investment and time to fully realize. -

7. European Market Share Gains
   Q: What are the macro trends in Europe and potential for further share gains?
   A: Sachin Mehra observed that Europe is performing well with positive macro trends, including momentum in France, Spain, and even Germany. Consumer confidence is improving, and unemployment remains low. Mastercard is winning share through conversions of portfolios like UniCredit and Deutsche Bank, and migrating from Maestro to Debit Mastercard, tapping into the secular opportunity. -

8. Incentives and Competitive Environment
   Q: Are rising incentives affecting Mastercard due to more renewals?
   A: Sachin Mehra stated that the market remains competitive, with no significant changes from prior years. They continue to incentivize customers to win volume, which they can then optimize and grow, increasing their net revenue yield. Michael Miebach added that they are winning portfolios by offering differentiated propositions but are thoughtful about which deals to pursue, focusing on net revenue yield. -

9. Pricing Strategy and Potential Increases
   Q: Is there room for more pricing increases across your products?
   A: Sachin Mehra explained that their philosophy remains unchanged; they invest heavily in innovation and deliver value to customers, seeking to realize value from those investments through pricing. Operating in a competitive market, they pay rebates and incentives to win portfolios and consider net pricing, net of the compression from rebates and incentives. They continue to see minimal net pricing changes. -

10. Outlook for 2025 and Effects of Lapping
    Q: Is Q4 growth a reasonable baseline for thinking about 2025?
    A: Sachin Mehra indicated that factors like the leap year effect and the lapping of significant share wins—such as Citizens and Wells Fargo—that occurred in 2024 will impact 2025 comparisons. Additionally, pricing actions taken will have their lapping effect come through in 2025. More detailed guidance will be provided in the coming months. -

Quarterly guidance for Q4 2024:

• Net Revenue Growth: Expected to be in the low teens range - (raised from the high end of a low double-digit range - )
• Operating Expense Growth: Expected at the high end of a low double-digit range - (raised from the low double-digit range - )
• Other Income and Expenses: An expense of approximately $85 million - (lowered from $100 million - )
• Non-GAAP Tax Rate: Approximately 17% - (lowered from 17%–18% - )
• Impact of Pillar 2 Global Minimum Tax Rules: Expected to offset the benefit of an incentive grant in Singapore starting in 2025 - (no prior guidance)