(Bloomberg) -- Mastercard Inc.'s VocaLink bet is paying off.
Contributions from the acquisition helped fuel an 18 percent increase in revenue for the payments network in the third quarter, exceeding analysts' estimates.
The VocaLink deal has given Mastercard a foothold in the burgeoning person-to-person and business-to-business payments markets, areas still dominated by cash, check and direct bank transfers. The $920 million purchase, completed in April, also offers the firm an edge over larger rival Visa Inc., which has been slower to capitalize on those markets.
“It's a very clean quarter,” Mastercard Chief Financial Officer Martina Hund-Mejean said Tuesday in a phone interview. “Integration activities are going great, and with VocaLink we're off to a very good start.”
Mastercard shares climbed 1.7 percent to $151.50 at 8:46 a.m. in early trading in New York. The stock gained 44 percent this year through Monday, outpacing the 35 percent advance of the S&P 500 Financials Index.
VocaLink is working with an association of the biggest U.S. banks including JPMorgan Chase & Co. and Bank of America Corp. -- known as the Clearing House -- to debut a real-time payments service later this year that would give consumers, businesses and government agencies the ability to send and receive money instantly. Of the $25 trillion annual business-to-business payments in North America, just $1 trillion are processed on cards, Mastercard estimates.
“We're developing the capabilities in products to go after those in an aggressive way and we think that gives us some very significant runway to continue to grow our business,” North American President Craig Vosburg said at the company's investor day last month. “We look forward to working with the Clearing House and its member banks to develop applications for that technology to be used in this market very soon.”
Also see: Visa sees momentum extending to 2018 as profit tops forecast
The acquisition of VocaLink and several smaller deals added 2.5 percentage points of revenue growth in the period ended Sept. 30, Purchase, New York-based Mastercard said Tuesday in a statement. Total revenue climbed to $3.4 billion on higher customer spending, compared with analysts' estimates of $3.28 billion.
Here's a summary of other key numbers from the firm's third quarter:
- Net income climbed 21 percent to $1.43 billion, or $1.34 a share, from $1.18 billion, or $1.08, a year earlier, according to the statement. The average estimate of 34 analysts surveyed by Bloomberg was for adjusted per-share profit of $1.23.
- Purchase volume, a measure of customer spending, rose 11 percent to $981 billion, led by gains in Europe and the U.S.
- Mastercard reiterated that it's targeting 2017 adjusted revenue growth in the “high end of low-double digits.”
- Total operating expenses increased 20 percent to $1.46 billion, exceeding analysts' estimates, fueled by acquisitions including VocaLink. Mastercard now expects full-year operating expense growth at the “top end of high-single digits,” compared with its earlier forecast of “high single-digits.” Hund-Mejean said the increase was due to marketing costs related to its Masterpass digital-wallet program.
- Cross-border volume, a measure of customer spending abroad, rose 15 percent on a local currency basis.
--With assistance from Hannah Levitt
To contact the reporter on this story: Jenny Surane in New York at jsurane4@bloomberg.net.
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steven Crabill, Larry DiTore
©2017 Bloomberg L.P.
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