Mastercard CEO: 'We will get through this'
Mastercard CEO Ajay Banga says he is certain that science, medicine and innovation will lead the world out of the coronavirus pandemic, but there is little indication of when that will happen.
“We will get through this. I have tremendous confidence that people will find solutions in the face of difficult circumstances,” said Banga said during Wednesday’s earnings call.
The card brand did have some positive news: signs of stability, and growth in digital channels. But it did not provide a forward view for the next quarter or the full year, and it also withdrew its performance objectives for the following year.
For the quarter ending March 31, Mastercard reported net income of $1.7 billion, or $1.68 per share, down from $1.9 billion, or $1.80 per share in the prior year. Net revenue increased to $4 billion. from $3.89 billion. That was better than the FactSet projection of $3.96 billion and enough to boost Mastercard’s share 3.4% in premarket trading on Wednesday, following a broader decline of 17% over the past three months versus an overall S&P decline of 13%.
Mastercard also reported it has $10.7 billion on its balance sheet, allowing investment in "new opportunities," Banga said, which could mean acquisitions. The card company has temporarily halted share buybacks, and Banga said there would be no COVID-19-related layoffs at Mastercard. It has been a “very trying time” but the card brand has seen early signs of stabilization in spending, Banga said.
Mastercard's view divides the coronavirus crisis into phases, such as containment, stabilization, normalization and growth. The containment phase included lockdowns and a substantial decline in payment volumes, a phase that has passed in most markets, according to Banga. That leads to the stabilization phase, in which smaller businesses reopen and there’s a quick growth in e-commerce payments. Most markets are in this phase.
The recovery phase, in which a broader set of businesses and activities reopen, has yet to occur outside of China. And the growth phase, which is reliant on treatment and vaccines, does not have a clear timeframe, according to Banga.
“The fiscal stimulus packages have been critical for small businesses and other hard-hit parties,” Banga said. “There’s been strong policies in a number of countries, which will be important as the recovery takes hold.”
Travel is a big part of the recovery. Under questioning from investors, Banga noted that in China — which is in its “normalization phase” in Mastercard’s parlance — trains and local flights have resumed bookings, and restaurant payment flows are recovering. China is also discussing reopening cross-border travel.
“The airlines are watching this carefully but they need to see some bookings,” Banga said, adding security screenings at U.S. airports are increasing, suggesting the beginnings of a travel recovery. But he suggested robust intercontinental long-haul travel may remain low for the next year.
In Mastercard’s January earnings call, Banga said he was worried about the coronavirus turning into a pandemic, which would cloud the economic outlook. Since that time, the virus has caused health, economic and political crises in countries globally. This has taken a toll on corporate earnings, though companies with a heavy digital commerce component are expected to fare comparatively better. Amex, which has a heavy travel component, recently reported a quarterly net income of $367 million, compared to $1.6 billion a year earlier, and plans a refresh of several of its card products.
Mastercard’s Wednesday earnings call revealed the fast changes to consumer behavior toward more digital payments and contactless cards, which the card brand expects will be permanent habits. Card not present volume increased to more than 50% of Mastercard’s volume in March, up from 40% the prior year. And contactless payments rose 40% in the first quarter as Mastercard boosted contactless limits.
As such, Mastercard’s digital strategies should do well in the long-term since much of the changes in payment habits will be lasting. Mastercard is also conducting research on consumer comfort with cash payments, with the expectation of a decline in cash usage.
In the third week of April, payment levels stabilized in most regions. As social distancing relaxes, Mastercard expects payments on gas, non-air travel and non-coronavirus health care should increase in the near-term due to pent up demand.
Mastercard also reported its services business, such as working with merchants on inventory levels, partnering with fintechs, data analytics, or fraud prevention would help weather the downturn since these businesses are not reliant on transaction volumes.
During the earnings call, Banga frequently mentioned vaccines and treatments as key to accelerating recovery. The card brand has invested in the COVID-19 Therapeutics Accelerator with the Gates Foundation and Wellcome. Banga said he's confident in a treatment by summer but a vaccine will not be available until next year.
“The public health is the most important policy in the near term. It’s the critical first step in getting the economy back on track,” Banga said.