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Mastercard Inc. provided a more encouraging view of spending trends Wednesday than investors had been fearing, helping to give its shares a lift.
Though the company saw a sharp contraction in spending as more countries imposed social-distancing measures, Mastercard MA, +6.19% executives indicated that trends seem to be stabilizing and pointed to areas of the business like services that are proving especially resilient.
See more: Mastercard stock gains after earnings top expectations amid COVID-19
Mastercard’s stock is up 7% in early-afternoon trading.
One of the high points of Mastercard’s earnings call was the disclosure that card-not-present transactions accounted for 50% of volumes in April, up from 40% a year ago. This suggests that the company is helping to offset the declines in in-store spending with online purchases, as more consumers try digital services like online grocery ordering for the first time.
Wedbush analyst Moshe Katri called this a “game-changing” spike that came in far above his estimate that card-not-present transactions made up 36% of volume. He said the company’s results were an upbeat signal for what investors will soon hear from Visa Inc. V, +5.16%, PayPal Holdings Inc. PYPL, +5.64%, Global Payments Inc. GPN, +4.57% and Fidelity National Information Services Inc. FIS, +3.98%
Mastercard also broke down the trends it’s been seeing in its cross-border business. There was concern about this area heading into the report since cross-border spending is heavily tied to travel, and while cross-border volume “appears to be leveling off down approximately 50% year-over-year,” some areas of cross-border are showing better momentum.
Card-not-present cross-border volumes were down only about 25% in April, the company said, but even that category includes spending related to online travel. Excluding travel and entertainment, card-not-present cross-border volumes would be up roughly 20% for the month, the company said. This includes purchases of subscription services, gaming, and clothing, according to Chief Financial Officer Sachin Mehra on the earnings call.
Mehra told MarketWatch that the crisis provided a “a reinforcement of the appropriateness of Mastercard’s strategy” as the company’s investments in e-commerce and contactless payments paid off. Mastercard saw a 40% increase in tap-to-pay transactions in the first quarter as it raised the transaction limits on these purchases and as consumers became more wary of using cash for fear of spreading the coronavirus.
“If I want to buy something, I certainly don’t want to touch the pen, I certainly don’t want to punch numbers into the keypad, and all that leads me to contactless,” Mehra said. “We’ll keep that education process going.”
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Many countries have been quicker than the U.S. to adopt contactless payments but Mastercard and Visa Inc. have been working with issuers in recent quarters to introduce more contactless cards into the U.S. market. The hope is that consumers will ultimately gravitate to the quickness of tap payments, making them more likely to choose cards over cash for small purchases.
Various Mastercard executives highlighted the resilience of Mastercard’s services business, which includes analytics, risk, and loyalty capabilities. The company’s “other revenues” category grew 26%, or 28% on a currency-neutral basis, including a 6-point impact from acquisitions.
“Our services lines are holding up well despite the downturn as a significant portion are not linked to transaction levels,” President Michael Miebach said. The company is seeing a greater need for digital-identity products that help authenticate whether people shopping with digital credentials are who they say they are.
Mehra noted that merchants of all sizes are also showing interest in loyalty services that help them build and maintain customer relationships. “Now more than ever folks will want to establish deep loyalty with their customer bases,” he said.
Mastercard shares have slipped 12% in the past three months as the S&P 500 SPX, +2.49% has lost 10%.
