What Visa and Mastercard earnings say about consumer spending

The two leading credit and payment providers, Visa (NYSE:V) and Mastercard (NYSE:MA), reported quarterly earnings this week and the results were better than anticipated.

Both companies reported solid earnings that bested expectations, which may have come as a bit of a relief to investors given the economic climate.

These two payment giants rely on consumer spending for their revenue, as they generate fees every time the card is used and the more that is spent, the higher the fees.

In a first quarter that saw consumer confidence plummet and the economy shrink, there was certainly reason for concern that Visa and Mastercard might feel the effects.

But that did not come through in their earnings reports.

Resilient in uncertain times

Visa, which reported earnings Wednesday night, saw a 9% increase in revenue in the quarter to $9.6 billion. That bested estimates of $9.55 billion.

Net income dropped 2% to $4.6 billion, but that was due to some special items related to litigation and acquisition costs. Minus those special items, adjusted net income was up 6%. Earnings were up 1% to $2.32 per share, while adjusted earnings rose 10% to $2.76 per share. The adjusted earnings beat estimates of $2.68 per share.

Visa saw its payments volume, which is the total purchases spent using Visa cards, rise 9% year-over-year. The number of processed transactions also increased 9%. Further, its cross-border transactions, money spent in one country for a purchase in another, jumped 13%. Those are all strong numbers that drove Visa’s revenue gains.

“Consumer spending remained resilient, even with macroeconomic uncertainty,” Visa CEO Ryan McInerney said. “Our strategy across consumer payments, commercial and money movement solutions and value-added services, our diversified business model, and our focus on innovation position us well for the rest of the fiscal year and beyond.”

The results were similar for Mastercard, which saw revenue jump 14% in the quarter to $7.3 billion, an increase of 14%. This topped estimates of $7.1 billion.

Net income increased 9% to $3.3 billion, while earnings jumped 11% to $3.59 per share.  Adjusted net income was $3.4 billion, up 10%, while adjusted earnings rose 13% to $3.73 per share. That destroyed estimates of $3.57 per share.

Similar to Visa, the gross dollar volume, as they call it, was up 9%, while cross border volume rose 15%. Mastercard also uses a metric called switched transactions, which surged 9%.

“While there is uncertainty in the world, we’ve built a diversified, resilient business model and proven strategy that enables us to effectively navigate various economic environments,” Michael Miebach, Mastercard CEO, said.

What’s the outlook?

Visa and Mastercard are two of the most resilient, all-weather stocks out there, because they are so dominant in their space. But they also have very simple business models with little relative overhead, so they typically have huge margins.

Visa has an operating margin of around 67%, which means that it generates 67% in profit for every dollar of revenue, while Mastercard has a margin of around 57%. Most companies consider an operating margin in the 20% range good.

A big reason both stocks were rising was their outlooks. With tariffs now in place, and the potential for a recession and rising inflation, there could certainly be a slowdown in spending.

But neither Visa nor Mastercard reflected that in their outlooks. Visa calls for low-double-digit revenue growth in this quarter and for the full fiscal year. It also expects high-teens earnings growth in this quarter and low-teens for the fiscal year.

Mastercard actually raised its revenue guidance for the fiscal year from low double-digits to low teens.

The outlooks indicate an expectation that consumers will remain resilient. But, as Miebach said on the earnings call, it is an uncertain environment.

“Consumer and business sentiment has weakened, primarily due to concerns surrounding the impact from tariffs and geopolitical tensions,” Miebach said. “On the other hand, so far this year, the fundamentals that support consumer spending have been solid and our drivers are generally stable. No matter what, it remains clear that we have intentionally embedded resiliency.”

Visa and Mastercard are two great stocks with a history of navigating choppy markets. Both have similar upside, about 13%, in their price targets, and are generally solid long-term options.