Mastercard Q3 Revenue Rises 14% to $9.8 Billion, Adjusted EPS Beats on Value-Added Services; Shares Up 4%

Mastercard (MA) reported third-quarter adjusted EPS of $5.31 on net revenue of $9.8 billion, beating consensus estimates of $5.17 and $9.66 billion. Net revenue rose 14% from $8.6 billion a year earlier, and adjusted EPS rose 21%. GAAP diluted EPS was $5.28; the adjusted figure excludes $74 million of pre-tax litigation charges, mainly settlements with merchants that opted out of the U.S. merchant class litigation. CEO Michael Miebach called it "another strong quarter for Mastercard, delivering net revenue growth of 14%."

The beat was led by the services side of the business. Value-added services and solutions revenue grew 19%, outpacing the 11% rise in payment network revenue, the segment built on transaction fees. Zacks also credited cross-border volumes and pricing initiatives for the revenue growth.

Underlying activity grew on a local currency basis: gross dollar volume rose 7% to $3.0 trillion, cross-border volume rose 11%, and switched transactions rose 9%. Adjusted operating expenses rose 12% to $3.9 billion, yet the adjusted operating margin expanded to 60.5% from 59.8%. Adjusted net income rose 17% to $4.7 billion, helped by a lower adjusted tax rate of 20.1% versus 21.4%. Mastercard repurchased 5.3 million shares for $3.0 billion and had $4.9 billion left under its buyback programs as of Oct. 26.

Shares gained 2.7% before the open and were up 4% at $636.23 in afternoon trading, per 24/7 Wall St., taking the stock up 12% this year. Rivals rose less: Visa (V) and American Express (AXP) each gained 2%, and PayPal (PYPL) rose 1%.

Watch whether value-added services keep outgrowing the network business, and how rebates and incentives paid to customers develop. 24/7 Wall St. flagged rising rebates and incentives and weak U.S. debit growth as risks, and Zacks noted that payment network rebates rose alongside operating expenses.