What supported third-quarter growth?

  • Net revenue rose 14% year over year in the third quarter of 2026, with payment network revenue up 11% and value-added services revenue up 19%. Morgan Stanley believes multiple sources of growth supported the results.
  • US credit card gross dollar volume rose 10% year over year, and European purchase volume increased 10%. US debit card gross dollar volume rose just 1%, still affected by the migration of Capital One’s debit card business.
  • Growth in US volume processed over the Mastercard network rose from 6% in the second quarter to 7% in the third quarter. The rate rose further to 9% as of 21 October, supported by higher oil prices as well as the migration’s impact entering the comparable period.

Does the slowdown in cross-border e-commerce signal weaker demand?

  • Year-over-year growth in cross-border card-not-present volume excluding travel fell from 20% in the second quarter to 15% in the third quarter. Morgan Stanley attributes the slowdown mainly to EU customs fees, the timing of major retail promotions and a higher comparison base for cryptocurrency transactions.
  • Meanwhile, growth in cross-border travel volume rose from 6% to 8%, and growth in other cross-border volume, which carries higher yields, rose from 11% to 12%. This led the bank to conclude that the e-commerce slowdown did not reflect a broad weakening in cross-border demand.
  • Trends were broadly stable in October: cross-border card-not-present volume excluding travel rose 14% year over year, while travel volume grew 7%; the latter was affected by holiday timing.

Can the strong growth in value-added services continue?

  • Value-added services net revenue rose 19% year over year in the third quarter, slightly below the second quarter’s 20% but still substantially faster than the payment network. Products including security, customer engagement, business insights and digital identity authentication all saw demand, while BVNK’s contribution was small.
  • About 60% of value-added services revenue is tied to network transactions, which Morgan Stanley believes enables it to grow as the network business expands. However, third-quarter outperformance in value-added services was also driven by some service projects and contracts being brought forward from the fourth quarter.
  • Over the longer term, the bank believes agentic commerce could create opportunities for services such as transaction authentication and fraud prevention. Following its acquisition of BVNK, the company is also combining stablecoin infrastructure with its existing money transfer network to expand payment and service use cases.

Why was full-year guidance not raised despite the earnings beat?

  • The company maintained its guidance for low-double-digit year-over-year net revenue growth for full-year 2026 and expects fourth-quarter growth at the high end of the low-double-digit range, including an approximately 1 percentage point foreign exchange headwind. This is below the third quarter’s 14%.
  • The third quarter benefited from value-added services projects being brought forward and rebates and incentives coming in below expectations. Some rebates and incentives shifted to the fourth quarter, creating a timing difference between quarters.
  • Morgan Stanley raised its 2026 revenue growth forecast from 13.2% to 13.8% and its expense growth forecast from 11.2% to 11.8%, while expecting the operating margin to remain at 59.9%. The bank raised its adjusted earnings per share estimates for 2026 and 2027 to 19.99 dollars and 22.96 dollars, respectively.
  • The bank maintained its Overweight rating and raised its price target from 681 dollars to 712 dollars. In addition to higher earnings estimates, it raised its valuation basis from 30 times to 31 times expected 2027 earnings per share, citing factors including a rerating of peers.