Executive Summary / Key Takeaways

• Mastercard delivered robust Q1 2025 results, with net revenue up 14% (17% currency-neutral) and adjusted EPS up 13% (16% currency-neutral), driven by broad-based strength in both its core Payment Network and high-growth Value-added Services and Solutions segments.
• The company is successfully executing against a significant secular shift to digital payments and expanding into large addressable markets in commercial and new payment flows, supported by strategic investments in technology and partnerships.
• Technological differentiation, particularly in security (tokenization, AI-powered fraud detection) and new payment rails (Mastercard Move, Multi-Token Network), is a key competitive advantage enabling new use cases and driving value-added services growth.
• Management maintains a positive outlook for 2025, guiding for full-year net revenue growth at the high end of low double digits to low teens (currency-neutral, ex-acquisitions), assuming healthy consumer spending, while acknowledging risks from macroeconomic uncertainty and ongoing litigation.
• Despite facing intense competition from traditional networks, fintechs, and local schemes, Mastercard's diversified model, strategic deal wins, and expanding services portfolio position it for continued growth, though significant litigation and regulatory risks remain factors to monitor.

Mastercard Incorporated stands as a technology powerhouse at the heart of the global payments industry, connecting a vast ecosystem of consumers, financial institutions, merchants, and governments. Its core function lies in enabling secure, simple, and accessible electronic transactions, a role that positions it to capitalize on the enduring secular shift away from cash and checks. This fundamental trend provides a powerful undercurrent for growth, regardless of the immediate economic climate.

The company's strategy is built on a three-pillar foundation: strengthening its core consumer payments business, expanding into commercial and new payment flows, and growing its suite of value-added services and solutions (VAS). This diversified approach, spanning geographies, products, and spend categories, is intentionally designed to build resilience and capture opportunities across varied market conditions. Decades of innovation have shaped Mastercard's current position, enabling it to respond strategically to evolving market dynamics and competitive pressures.

The competitive landscape is multifaceted and intense. Mastercard operates as part of a global duopoly with Visa (V), the largest player, and competes with other major networks like American Express (AXP) and Discover (DFS), particularly in core card payments. Beyond traditional networks, the competitive arena includes fintech innovators like PayPal (PYPL), Square (SQ), emerging blockchain platforms, and various domestic payment schemes (such as EPI/Vero in Europe). Mastercard's strategic response involves leveraging its global network, investing heavily in differentiated technology, pursuing strategic partnerships, and expanding its services portfolio to create a distinct value proposition. While Visa often holds an advantage in overall scale and certain efficiency metrics, Mastercard has demonstrated faster growth in recent periods and is aggressively building out capabilities in new areas like VAS and new payment flows.

At the core of Mastercard's competitive edge is its differentiated technology. The foundational network itself provides global reach and reliability. Layered upon this are critical security and innovation technologies. Tokenization, which replaces sensitive card details with unique digital tokens, is now fundamental, underpinning approximately 35% of all switched transactions in Q1 2025 and having grown 40x over the past six years. This technology tangibly enhances security and improves approval rates for online transactions. Contactless technology is also deeply embedded, accounting for 73% of in-person switched transactions in Q1 2025, driving speed and convenience.

Mastercard is actively investing in next-generation technologies. Its AI-powered Decision Intelligence solution, enhanced using capabilities from the Brighterion acquisition, is proving highly effective in combating fraud, detecting over 40% more fraud in Q1 2025 compared to the prior year. This directly translates to reduced losses and increased trust for issuers and consumers. The company is also exploring the potential of blockchain technology through its Multi-Token Network (MTN), aiming to facilitate faster, more transparent cross-border B2B payments and enable real-world asset tokenization, as demonstrated by its partnership with Ondo Finance. New initiatives like Mastercard Agent Pay leverage agentic tokens and security solutions to enable transactions within AI platforms, positioning the company for the future of commerce. In the realm of open banking, Mastercard is scaling use cases around account opening, linking, and data aggregation, providing tools for lenders and financial institutions to streamline processes and offer better services. These technological advancements are not merely features; they are strategic assets that enhance the network's value, enable the development of high-margin services, and reinforce Mastercard's competitive moat against both traditional and emerging rivals.

Mastercard's business model generates revenue primarily through assessments on transaction volumes and the provision of value-added services. In the first quarter of 2025, the company reported net revenue of $7.25 billion, a 14% increase year-over-year (17% on a currency-neutral basis). This growth was broad-based, with the Payment Network segment contributing $4.43 billion (+13% reported, +16% currency-neutral) and Value-added Services and Solutions contributing $2.82 billion (+16% reported, +18% currency-neutral). The Payment Network growth was fueled by increases in domestic and cross-border dollar volumes and switched transactions, while VAS growth benefited from acquisitions (contributing 4 percentage points), scaling security and digital solutions, and strong demand for consumer acquisition and engagement services.

Profitability remains strong, with a TTM Gross Profit Margin of 76.45%, Operating Profit Margin of 55.48%, and Net Profit Margin of 45.21%. Operating expenses in Q1 2025 totaled $3.10 billion (+13% reported), driven by higher general and administrative and advertising and marketing costs, partly due to acquisitions and investments in strategic initiatives. The company's operating margin stood at 57.2% in Q1 2025. While Mastercard's margins are generally lower than Visa's, its faster revenue growth has contributed to strong bottom-line expansion. Net income reached $3.28 billion in Q1 2025, up 9% year-over-year, resulting in diluted EPS of $3.59 (+11%). Adjusted net income and EPS, excluding special items like litigation provisions and equity investment impacts, showed even stronger growth.

Mastercard demonstrates robust cash flow generation, with $2.38 billion in net cash provided by operating activities in Q1 2025, a significant increase from the prior year, driven by higher net income and lower litigation settlement payments. This strong operational cash flow supports strategic investments, debt management, and shareholder returns. The company maintains a healthy liquidity position, with $7.58 billion in cash and cash equivalents at March 31, 2025, and access to $8.0 billion in committed credit facilities, with no outstanding borrowings. Total debt stood at $18.80 billion, with the earliest significant maturity in November 2026. Mastercard actively returns capital to shareholders through dividends (quarterly dividend per share increased to $0.76)

and share repurchases ($2.50 billion in Q1 2025, with $11.80 billion remaining authorization as of late April 2025).

Looking ahead, management maintains a positive outlook for 2025, assuming consumer spending remains healthy despite macroeconomic uncertainty. For the full year 2025, Mastercard expects net revenue to grow at the high end of a low double digits to low teens range on a currency-neutral basis, excluding acquisitions, with acquisitions adding 1 to 1.5 percentage points. Operating expense growth is guided to be at the low end of a low double digits range (currency-neutral, ex-acquisitions and special items), with acquisitions contributing approximately 5 percentage points. For the second quarter of 2025, net revenue growth is anticipated to be in the low teens (currency-neutral, ex-acquisitions), with acquisitions adding 1 to 1.5 percentage points. Operating expenses are expected to grow at the low end of a low double digits range (currency-neutral, ex-acquisitions and special items), with acquisitions contributing 4 to 5 percentage points. The non-GAAP tax rate is projected to be between 20% and 20.5% for Q2 and the full year, reflecting the impact of global minimum tax rules.

Despite the positive outlook, Mastercard faces significant risks. Extensive legal and regulatory proceedings, particularly related to interchange fees and acceptance practices, pose substantial potential liabilities. The U.S. merchant litigation continues, with approximately 60 opt-out merchants claiming $10 billion in aggregate single damages, and the first trial scheduled for October 2025. European litigation also involves significant claims, including a U.K. consumer collective action claiming over £10 billion in damages. Regulatory scrutiny from bodies like the U.S. DOJ and European Commission adds further uncertainty. Macroeconomic factors, including geopolitical tensions, tariffs, and currency fluctuations, could impact consumer and business spending, affecting transaction volumes. Competition remains fierce, requiring continuous investment and potentially impacting pricing and rebates. Settlement risk, while historically low, represents a large gross exposure ($76.27 billion in Q1 2025).

Conclusion

Mastercard's investment thesis is fundamentally rooted in its position as a leading technology company powering the global shift to digital payments and expanding its role in the broader digital economy. The company's diversified business model, spanning core payments, new payment flows, and a rapidly growing suite of value-added services, provides a resilient engine for growth in an uncertain environment. Recent financial results demonstrate strong momentum across these pillars, supported by strategic deal wins and ongoing investments in differentiated technologies like tokenization, AI, and new payment rails. While the competitive landscape is challenging and significant litigation and regulatory risks persist, Mastercard's strategic focus on innovation, ecosystem partnerships, and delivering value beyond traditional transactions positions it to capture substantial long-term opportunities. The company's ability to leverage its technological edge and diversified offerings to drive both payment volumes and higher-margin services will be key to sustaining its growth trajectory and creating value for investors.