Mastercard Incorporated (NYSE:MA) is expected to outperform earnings expectations for the third quarter of 2023, with the results set to be disclosed on October 26, before the market opens.

Earnings Estimates

The Consensus Estimate for third-quarter earnings per share stands at $3.21, reflecting a 19.8% increase from the previous year’s figure of $2.68. This consensus estimate has risen by one penny in the past week. Furthermore, the consensus estimate for third-quarter revenues is $6.5 billion, indicating a 13.4% increase compared to the figure reported in the same period last year.

Historical Performance

Mastercard has consistently surpassed estimates over the last four quarters, with an average positive surprise of 3.2%.

Q2 Earnings Recap

In the previous quarter, Mastercard, a leading global payment solutions provider, reported adjusted earnings per share of $2.89, surpassing the Consensus Estimate by 1.8%. This strong performance was primarily driven by robust consumer spending, especially in the travel sector, and an enhanced suite of services. Additionally, significant growth in cross-border transaction volume contributed to the positive results, although rising operating costs had a partially offsetting effect.

Factors Driving Q3 Performance

For the third quarter, Mastercard’s revenues are anticipated to benefit from increased spending in the travel and entertainment sectors. The Gross Dollar Volume (GDV), a measure of the value of transactions on Mastercard-branded cards, is expected to rise due to heightened card usage, both domestically and internationally.

The Consensus Estimate for the total GDV of all Mastercard-branded programs suggests a 12.3% increase from the figure reported in the previous year’s quarter. A nearly 10% increase is predicted by our model. It is expected that domestic GDV will increase by around 6% year-over-year, while international operations are forecasted to grow by 12%. Strength in Latin American and European operations is believed to be a driving force behind these metrics.

Processed transactions are projected to experience growth, driven by resilient consumer spending and an increase in contactless payment initiatives. The Consensus Estimate for processed transactions points to a 14.8% increase compared to the previous year’s figure, with our estimate indicating a 13.5% growth.

The expansion of cross-border travel is also likely to have a positive influence on Mastercard’s cross-border volumes. The consensus estimate for cross-border assessments anticipates an increase of nearly 21% compared to the previous year, with our projection exceeding 22%. Moreover, our model predicts a 12.7% and 12.9% year-over-year increase in domestic assessments and transaction processing assessments, respectively.

All these factors are expected to drive substantial growth for Mastercard in the third quarter, positioning it for a potential earnings beat. However, the company may have faced increased costs, as well as higher rebates and incentives during the quarter, which could partially offset these positive developments.

It is likely that operating costs increased in the third quarter due to higher general and administrative costs, potentially impacting profitability. Total adjusted operating expenses are expected to rise by 11.6% compared to the same period the previous year.

Furthermore, our estimate suggests a nearly 20% year-over-year increase in payments network rebates and incentives. Additionally, due to the high interest rate environment, the company’s interest expense is expected to rise by around 19% from the same period in the previous year.

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