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Oct 28, 2020

Mastercard falls as slump in foreign travel crimps revenue

Gordon Reid discusses Visa and Mastercard

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Mastercard Inc. shares dropped after the company reported profit and revenue that fell short of analysts’ estimates, pinched by a persistent slump in foreign travel.

Many consumers continue to avoid travel and spending overseas, transactions that are among the most lucrative on Mastercard’s network, even as overall spending on the firm’s cards has been improving as regions re-open from lockdowns. Cross-border fees slid 48 per cent in the third quarter from a year earlier, a bigger drop than the 44 per cent decline analysts expected.

“Travel spending remains a challenge,” Chief Executive Officer Ajay Banga said Wednesday in a statement. Still, he said the company is seeing “encouraging progress in the trajectory of domestic spending.”

Mastercard and Visa Inc. have seen their stocks battered during the coronavirus pandemic, which prompted economies around the world to shutter and stifled global travel. At the same time, the widespread shift to e-commerce has helped boost spending on the firms’ cards in recent months.

Mastercard fell 6.7 per cent to US$295.79 at 9:34 a.m. in New York. The shares are down 0.9 per cent this year, compared with a 24 per cent gain for the S&P 500 Information Technology Index.

Chief Financial Officer Sachin Mehra told analysts on a conference call Wednesday that the company doesn’t expect a pick-up in cross-border travel until there’s a vaccine or other therapeutics to treat the coronavirus.

“Our view is personal travel comes back quicker than business travel does,” Mehra said.

Consumers are increasingly turning to their debit cards as governments around the world pump unprecedented stimulus into economies, funds that often are routed into consumers’ checking accounts. Spending with the payment method climbed 13 per cent in the third quarter, topping analysts’ estimates and helping to counter a decline in credit-card use. It was also enough to help Mastercard post a surprise increase in purchase volume.

Expenses in the third quarter fell to US$1.73 billion, below the US$1.88 billion average of analyst estimates compiled by Bloomberg. Looking ahead, the firm now expects expenses in the fourth quarter to increase by a percentage in the low single digits. Excluding acquisitions and the effects of currency swings, costs should drop by a similar percentage, the company said.

Other key figures:

  • Net income dropped 28 per cent to US$1.5 billion, or US$1.51 a share, missing the US$1.66 average of analyst estimates compiled by Bloomberg.
  • The firm set aside US$2.1 billion for rebates and incentives to persuade banks and retailers to route transactions over its network. That was little unchanged from a year earlier, and a smaller increase than analysts expected.
  • Spending on the firm’s cards climbed 4 per cent in the U.S., an jump that outpaced the 2.3 per cent gain for Mastercard’s worldwide purchase volume.