This Growing Segment Could Soon Deliver Over 50% of Mastercard Revenue

Mastercard (MA 0.56%) saw 27% revenue growth overall in its most recent quarter, and its "other revenue" segment itself was up 28%, making up 35% of the total revenue. In this episode of "3 Minute Stocks Updates" on Motley Fool Live, recorded on Feb. 2, host Brian Feroldi and Fool.com contributor Brian Withers discuss what the segment is and why it's likely to grow substantially more.

Brian Feroldi: In the most recent quarter, total revenue growth was 27%; 27% growth at Mastercard, that is fantastic. Now, at the same time, operating expenses were only up 18%. You put those two things together, and we saw a net income growth of 41%, to $2.3 billion. The company just continues to crank out net income and free cash flow. On an earnings basis, earnings were up 43% to $2.35. The delta there would be stock buybacks working in your favor. Now, gross dollar volume across the company's payments was up 23%. From a circulation perspective, the company, there are now 9% more Mastercards in circulation and in consumers' wallets than there were in the year-ago period, bringing the total to just under $3 billion. Now, when you look at each of the individual categories for Mastercard, the trouble spot since the pandemic began was cross-border volumes. That's when you're in one country and you spend in another, and it's a major revenue area for the company. With international travel put on hold globally, obviously, they've been sucking wind in that category, essentially for the last two years. Not so much anymore, though. In the fourth quarter, cross-border volume fees grew 59% to $1.38 billion. That figure is officially above pre-pandemic levels. Wow. That's great. This company's growth engine is completely back on track. At the same time, "other revenue," which is one of it's more growth-y categories that handle things like fraud detection and consulting, that revenue in that category was up 28% and is now about 35% of total revenues. The company is doing a great job about diversifying its revenue stream just beyond those simple payments. Now, if you look at a full year, the story was just as bright. Total revenue up 23%, earnings up 38%. Compare 2021 to 2019, total usage is up 36%. The company has continued to grow on a two-year basis beyond the pandemic. Now, looking forward over the next couple of years, management is guiding for high-teens revenue growth and low-20% earnings-per-share growth. This is back on track and better than ever.

Brian Withers: Wow. Mastercard is just doing super well. You talked a little bit about their other revenue segment. You think of other revenue as being the small little thing on the side, but they have 1.8 billion in other revenue this quarter. It was up a solid 28%, growing slightly faster than their overall business. What the heck is in that segment?

Feroldi: Yeah. This has been an evolutionary segment over the last couple of years. In 2012, it wasn't a rounding error forum, but it was not a major area of focus. But if you've been studying Mastercard over the last 10-plus years, this company has been making acquisition after acquisition, all in an effort to really bolster out this category. As of this quarter, it was more than 35% of total. In the beginning, it was about consulting, and benefits, and rewards. From there, they moved on to biometrics solutions, cybersecurity solutions, loyalty services. They are since moving into AI-driven analytics, and perhaps, with marketing and even crypto services. Mastercard is not going to let crypto currencies come in and threaten their entire business. They are investing necessarily in the category. I would say that this category continues to have room to grow. It wouldn't surprise me, if in a few years, it was more than 50% of total revenue.