MasterCard, Shares, Profit

MasterCard on Tuesday reported better-than-expected quarterly earnings and sales but faces tighter margins as it spends heavily to fend off competition from digital payment services.

The world’s second-largest payments network said net income rose 12.7% to $1.081 billion in the first quarter while revenue climbed 11.8% to $2.734 billion, as more consumers purchased items using credit and debit cards. Adjusted earnings per share improved to $1.01 from $0.86.

Analysts polled by Thomson Reuters had expected earnings of $0.95 per share on revenue of $2.651 billion. “We’re off to a very good start, with strong revenue and earnings growth driven by solid transaction and volume levels this quarter,” MasterCard CEO Ajay Banga said in a news release.

As Reuters reports, the fortunes of Mastercard and bigger rival Visa are “closely tied to the health of the economy and consumer spending” and, amid a recovering global and U.S. economy, their shares have surged about 19% in the past year. On news of the first-quarter results, MasterCard rose 1.5% to $118.12, hitting a new record high of $119.71 intraday.

As of March 31, MasterCard’s customers have issued 2.4 billion MasterCard and Maestro-branded cards. First-quarter adjusted gross dollar volume rose 8% to $1.18 trillion and purchase volume grew 9% to $862 billion.

But the company faces elevated costs, due in part to spending on digital initiatives such as the Masterpass digital wallet. Both MasterCard and Visa “are facing increasing competition from digital payment services as more people use smartphones to make payments, forcing them to ramp up their own e-wallet offerings,” Reuters noted.

MasterCard said on Tuesday it spent $170 million on advertising and marketing in the first quarter, up 26%, to support the rollout of Masterpass, while total costs rose to $1.23 billion from $1.09 billion a year.

CFO Martina Hund-Mejean told analysts that advertising and marketing spending in the second quarter is expected to increase by about $40 million from the year-ago period.

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