Mastercard's CEO has signaled that consumer spending in May remained resilient, easing recent market concerns.
This is welcome news because recent data from April had created some uncertainty. The core issue was a slowdown in cross-border spending growth, a key revenue driver for Mastercard that includes purchases made by travelers abroad. Growth in this area dropped from 8% in the first quarter to just 2% by late April, making investors wonder if consumer demand was starting to weaken.
Adding to this concern were broader economic factors. First, inflation reports for April, such as the PCE index, showed that prices were still rising quickly. Higher inflation can erode purchasing power, leading people to cut back on spending, especially on discretionary items like travel. The fear was that rising prices, particularly for essentials like gas, would force consumers to pull back.
Second, Mastercard is facing regulatory scrutiny. The UK's Financial Conduct Authority (FCA) launched an investigation into the company (along with Visa and PayPal) over competition concerns related to digital wallets. This kind of legal overhang can create uncertainty for a company's future earnings and weigh on its stock price.
So, the CEO's recent comments that May spending was 'stable to slightly better' directly counter the narrative of a slowdown. It suggests the weakness in April may have been a temporary blip rather than the start of a negative trend. It shows that despite inflationary pressures, consumers are continuing to spend. This operational strength helps reassure investors and provides a counterbalance to the regulatory risks.
Furthermore, Mastercard's stock valuation has recently fallen below its long-term average. If spending remains firm and the company continues to perform well, this could present an opportunity for the stock to recover, assuming the economic and regulatory headwinds don't worsen.
- Cross-border spending: Transactions made by a cardholder in a country different from where the card was issued. It's a significant indicator of international travel and e-commerce trends.
- PCE (Personal Consumption Expenditures) price index: An indicator of inflation in the United States, tracked by the Federal Reserve to measure price changes in consumer goods and services.
- Valuation (P/E ratio): The Price-to-Earnings ratio is a metric used to assess if a stock is overvalued or undervalued by comparing its current share price to its earnings per share.