Mastercard Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Macro Environment: Consumer spending remains healthy supported by low unemployment and wage growth outpacing inflation. Macro uncertainty exists but fundamentals for consumer spending are strong.
• Winning Deals: Extended partnerships with American Airlines, OnePay/Synchrony/Walmart, Uber. Signed deals with PayPal, Afterpay, Mercado Libre, Sicoob.
• Acceptance and Checkout Experience: Leveraged contactless technology in transit, transformed online checkout with tokenization, Click to Pay, payment passkeys. Focused on new verticals like insurance payments. Tapped into alternative distribution channels like stored value wallets.
• Consumer Experience: Launched CIBC Adapta Mastercard, elevated affluent value proposition with Mastercard Collection, deployed Mastercard One credential for payment flexibility.
• Commercial Payments: Launched differentiated capabilities, scaled virtual card solutions, expanded small business card distribution. Focused on small business navigator, fleet card integration into digital wallets, invoice payments with virtual card technology.
• Value-Added Services: Leveraged data and product capabilities, partnered with Garanti BBVA, Deutsche Bank. Developed new services like Mastercard account-to-account protect.

Segment Performance

• Payment Network: Net revenue increased 13%, driven by domestic and cross-border transaction and volume growth, including growth in rebates and incentives. Domestic assessments were up 9%, cross-border assessments increased 15%, transaction processing assessments were up 18%.
• Value Added Services & Solutions: Net revenue increased 22%, with acquisitions contributing approximately 4 ppt. Driven by demand for consumer acquisition and engagement services, scaling of security and digital authentication solutions, and pricing.
• GDV: Worldwide gross dollar volume (GDV) increased by 9% year-over-year. In the U.S., GDV increased by 6% with credit growth of 6% and debit growth of 7%. Outside of the U.S., volume increased 10% with credit growth of 9% and debit growth of 11%. Cross-border volume increased 15% globally.
• Switched Transactions: Grew 10% year-over-year. Card-present growth aided by increase in contactless penetration (75% of all in-person switched purchase transactions). Card growth was 6%.

Guidance

• Full Year 2025: Net revenues expected to grow at low teens range on currency-neutral basis, excluding acquisitions. Acquisitions expected to add 1-1.5 ppt. Foreign exchange tailwind 1-2 ppt. Operating expenses expected to grow at low end of low double-digit range, excluding acquisitions and special items. Acquisitions forecasted to increase OpEx growth rate by 4-5 ppt. Foreign exchange headwind 0-1 ppt. Non-GAAP tax rate expected 20%-21% for Q3 and full year.
• Q3 2025: Year-over-year net revenue growth expected at high end of low double-digit range, excluding acquisitions. Acquisitions forecasted to add 1-1.5 ppt. Foreign exchange tailwind 1-2 ppt. Operating expenses expected at low end of low double digits range, excluding acquisitions and special items. Acquisitions forecasted to add ~5 ppt to OpEx growth. Foreign exchange headwind 0-1 ppt. Other income and expenses expected ~$130 million in Q3.

Risks

• Macro Uncertainty: Government actions and geopolitical tensions pose macro uncertainty which could affect future performance.
• Lapping of Portfolios: Continued lapping of previous portfolio wins could impact year-over-year growth metrics as seen with Citizens and Wells Fargo portfolios.
• Pillar 2 Issues: Complexities around potential changes in Pillar 2 legislation and their impact on tax rates and company operations.

Q: Sanjay Sakhrani from KBW asked about lapping of portfolios and Capital One/Discover transition.

A: Sachin Mehra said lapping impact is getting more pronounced with continued lapping of various portfolios. On Capital One, conversions are ramping up but net revenue impact to overall company is minimal this year with most impact next year.

Q: Darrin Peller from Wolfe Research asked about value-added services pricing.

A: Michael Miebach said VAS portfolio is carefully curated with focus on security and customer engagement solutions. Cybersecurity solutions like Decision Intelligence Pro and customer engagement with Dynamic Yield provide clear value for pricing.

Q: Harshita Rawat from Bernstein asked about commercial POS international momentum.

A: Michael Miebach said commercial POS is significant with go-to-market through issuer relationships, fleet card business as leader, and focus on small business digitization and profitability.

Q: Tien-Tsin Huang from JPMorgan asked about revenue upside and Recorded Future.

A: Sachin Mehra said revenue upside was primarily from FX volatility with solid business performance. Michael Miebach said Recorded Future is in post-acquisition stage with new products and synergies in threat intelligence.

Q: Trevor Williams from Jefferies asked about cross-border volume growth.

A: Sachin Mehra said cross-border portfolio is diversified with strong value prop, and growth is faster than overall GDV growth with diversification between travel and non-travel.

Q: Dave Koning from Baird asked about client incentives.

A: Sachin Mehra said rebates and incentives as percentage of payment network assessments expected to pick up in Q3 with market competitiveness and pipeline of deals.

Q: Will Nance from Goldman Sachs asked about consumer data fees.

A: Michael Miebach said open finance is important but details on data fees are unclear with ongoing economic considerations.

Q: Rayna Kumar from Oppenheimer asked about market share in Brazil and India.

A: Michael Miebach said Brazil and India have strong digital economies with focus on providing choice, partnering, and competitive products.

Q: Craig Maurer from FT Partners asked about Pillar 2 and digital identity.

A: Sachin Mehra said Pillar 2 has complex implementation with need for local legislation changes. Michael Miebach said digital identity is critical for digital economy with various use cases.

Q: Nate Svensson from Deutsche Bank asked about U.S. consumer trends.

A: Sachin Mehra said U.S. consumer trends are impacted by calendar days and social security payments timing, but underlying trends are strong.

Q: Fahed Kunwar from Redburn Atlantic asked about pricing and future potential.

A: Sachin Mehra said pricing is tied to value delivered, and there is potential for future pricing as long as value is delivered.

Q: Ken Suchoski from Autonomous Research asked about pricing initiatives lapping.

A: Sachin Mehra said pricing initiatives from last year's third quarter will lap in the second half with continued value delivery driving future pricing.