Despite U.S. consumer confidence declining in October, suggesting slowing economic growth, and the Eurozone heading into a recession at the end of 2022, Mastercard (MA -0.12%) surpassed analysts' revenue and earnings expectations for the third quarter. In addition, management highlighted several reasons why it should outperform moving forward.

Here are two reasons Mastercard is a buy.

1. Cross-border payments are improving

Payment networks like Mastercard charge a "cross border fee" on all business transactions in one country involving a credit card issued outside that country. The fee amounts to 0.6% of the purchase price, and the payment network charges the cost to the merchant's bank accepting the foreign card. Revenue from these fees rises as more people travel outside their home country and use their credit cards.

By the end of 2019, cross-border fees comprised 33% of Mastercard's pre-pandemic net revenues. And when most nations instituted travel bans in early 2020 in response to the pandemic, it gutted this significant Mastercard revenue source. As a result, by the second quarter of 2020, the pandemic low, cross-border fees declined 54% year over year and were responsible for 46% of its net revenue loss of 19% year over year in the middle of 2020.

MA Revenue (Quarterly) Chart.

MA Revenue (Quarterly) data by YCharts.

Today international travel continues to recover as border restrictions are progressively relaxed. Mastercard Chief Executive Officer Michael Miebach said during its third-quarter 2022 earnings call that "Cross-border travel in the third quarter had reached 124% of 2019 levels." He added, "Relative to 2019 levels, most regions are up sequentially, including a notable improvement in Asia."

You can see the rebound in international travel in Mastercard's cross-border travel revenues. Cross-border fees that were only $637 million in the second quarter of 2020 have rebounded to $1.8 billion in the third quarter of 2022, which exceeds 2019 pre-pandemic third-quarter cross-border revenues of $1.5 billion. Additionally, cross-border revenue is now a 57% driver of its net revenue 15% year-over-year gains in the third quarter.

The best part is that international air travel has yet to recover fully. The International Civil Aviation Organization currently projects that most international routes should fully recover to their pre-pandemic levels by either the fourth quarter of 2022 or the first quarter of 2023. As long as travel continues improving, the company will continue to have a strong tailwind for revenue growth.

2. The Digital First program

Digital First is Mastercard's brand name for its virtual card, financial management, and benefits program, launched in 2019. A virtual payment card is a secure, temporary digital card number that operates similarly to a physical credit or debit card, except it is more secure. People can use virtual cards to make contactless payments in stores with a mobile device or online purchases with any computing device.

Virtual cards have several use cases with rising popularity.

First, many traditional businesses are replacing plastic corporate cards with virtual cards. Virtual cards provide companies with more control over employee spending.

Second, banks and fintechs use virtual card technology to quickly create custom-made credit, debit, and gift cards for customers.

Last, young innovative companies like DoorDash (DASH -1.00%) can use virtual card technology to create and issue one-use virtual cards. Dashers use these cards to pay out the exact amount for each food order at the specific restaurant where a customer made the food request.

All of the above use cases make the global virtual card market a rapidly growing segment, but market researchers have differing views on the eventual size of the opportunity. Pessimistic analysts think the market will only be worth $65 billion by 2030, and optimistic analysts believe the market will be well over a trillion by the end of this decade. Whatever the eventual size of the market, Mastercard wants a piece of this new opportunity.

Currently, the Digital First program benefits Mastercard by increasing its payment volume, expanding the places where its payments are accepted, and capturing new fintech payment flows -- growing revenues and profits.

Should you buy the stock?

About the only thing that can stop Mastercard long-term is regulation. Since it is part of a duopoly with Visa (V -0.93%), governments often give it fines, and it is the target of antitrust probes. So although the company is unlikely to be broken up, the threat that governments could create rules to generate more competition is always present.

On the other hand, it is a $330 billion market cap company within a $255 trillion market, currently targeting $115 trillion of that opportunity. Moreover, since it has many secular tailwinds, a huge brand name, and a powerful network effect, it likely has many years of double-digit growth with huge attractive margins ahead. 

Although it has a price/earnings-to-growth (PEG) ratio of 1.80 compared to the Financial Transaction Services industry's PEG ratio of 0.96, which many consider overvalued, this is one company that deserves the premium. Therefore, if you are looking for a stable growth company that should outperform the market, you should strongly consider Mastercard.