Why the 'Mastercard Is Cheap at 26x' Narrative Misses the Point

The framing is straightforward. Mastercard traded at a forward multiple of 40.2x in 2021, 36.8x in 2022, 32.5x in 2023, 29.4x in 2024, and now sits at 26.6x. Laid out that way, the conclusion feels obvious: the multiple has compressed by a third, the business has grown, the setup is favourable.

The Berkshire 13F filings showing an estimated $15 billion sell-down in payment stocks (including partial exits from positions) have added fuel to the 'forced selling creates opportunity' read. Brokerage notes have taken the same angle. 'Mastercard Hasn't Been This Cheap Since 2022' was a genuine headline as recently as this weekend.

The problem is that the benchmark is Mastercard's own historical multiple. That benchmark embeds the assumption that the business should continue to trade where it traded. If the structural case for the premium has changed, the historical multiple is no longer the right anchor.

Pull up the numbers. Visa's revenue grew 11.3% in FY25. Mastercard's grew 16.4%. That is a 510 basis point spread. In 2018, the spread was closer to 700 basis points. The gap has narrowed.

More importantly, the operating margin profile has shifted in Visa's favour. Visa operates at 68.3% operating margin. Mastercard operates at 57.7%. That 10.6 percentage point gap is wider than it was five years ago. Visa is converting revenue to operating income more efficiently, and the gap is widening.

Free cash flow tells the same story. Visa generated $21.6 billion in FCF against $40 billion in revenue, a 54.0% conversion. Mastercard generated $16.9 billion against $32.8 billion, a 51.6% conversion. Mastercard still produces excellent cash. But Visa produces more, at higher margins, at larger scale.

The data pattern is clear. The growth premium that justified a 10-turn multiple spread over Visa through most of 2018-2021 no longer exists. The market is correctly pricing this reality. The consensus that Mastercard is cheap assumes the old spread should return. Nothing in the fundamentals suggests it will.

Net income in FY25 was $15.0 billion, up from $8.7 billion in FY21. That is a 72% cumulative increase over four years, or 14.5% CAGR. Good, not great.

Meanwhile the share count has barely moved. Mastercard has deployed approximately $40 billion in buybacks over the period, which has reduced shares outstanding by about 7%. EPS growth has therefore run slightly ahead of net income growth, but not dramatically.

The current $15.0 billion net income against a $465 billion market cap is a 31.0x trailing multiple and a 26.6x forward. On those numbers, a 10% earnings growth algorithm would produce a 10% total return at constant multiples. That is a perfectly adequate expected return, but it is not the 'mispriced at current levels' story the consensus is selling.

For the multiple to expand, Mastercard needs to reaccelerate to 18-20% revenue growth and demonstrate 100 basis points of operating margin expansion. The FY25 print started that rebuild. The full year 2026 must confirm it. If it does not, the multiple stays where it is.

Mastercard announced this month that it is linking AI agent payments with a global financial inclusion push. The press release landed with excitement. The read was that Mastercard is positioning for the next payments paradigm.

Look at the positioning more carefully. AI agent payments are a defensive move, not an offensive one. If autonomous agents become primary transaction initiators, the existing card-present and card-not-present infrastructure becomes less relevant. The networks that win are whoever controls the rails that agents use to move money. Mastercard is engaging the problem now because not engaging it would be existential.

The same analysis applies to Mastercard's partnerships in the stablecoin and tokenised payments space. These are rails Mastercard does not own. Every investment is simultaneously an admission that the traditional card network is not the default future and an attempt to secure positioning in alternatives.

Historically, when payments incumbents have pivoted this aggressively into adjacent rails, the outcome has been survival with margin compression, not dominance with margin expansion. American Express in the early 2000s pivoted to merchant services; the core network franchise held, but high-margin interchange took a haircut. The Mastercard pivot into agents and stablecoins is likely to follow a similar arc. That is a risk the 26x multiple does not capture.