American Express Is Targeting a Revival in the Next Few Quarters
Global Network and Merchant Services segment
American Express’s (AXP) Global Network and Merchant Services segment operates a global payments network that processes and settles proprietary and nonproprietary card transactions. The division acquires merchants and provides point-of-sale products, multichannel marketing programs and capabilities, and services and data. These products and services leverage the company’s global closed-loop network.
American Express is looking to cross-sell its cards by expanding and utilizing its services clientele. For 2016, the division is expected to contribute higher in the overall revenue as competition increases in the core business.
The division’s total revenue net of interest expenses fell by 4% to $1.4 billion in the December quarter. It formed 17% of the company’s total revenue—compared to $1.5 billion in the same quarter last year. On a constant dollar basis, the division’s revenue rose by 1%. This was mainly due to increased revenue from its bank partners. The division’s net income stood at $417 million. It was similar to 4Q14.
American Express achieved net profit margins of 11% in the last year. Here’s how some of its peers in the payment processing industry fared with their net margins last year:
-
Mastercard (MA) – 38%
-
Visa (V) – 43%
-
Discover Financial (DFS) – 27%
Together, these companies account for 1.9% of the iShares Core S&P 500 ETF (IVV).
Expenses and initiatives
The division’s total expenses fell by 4% to $743 million in 4Q15—compared to $772 million in 4Q14. On a constant dollar basis, expenses rose by 1%. The billed business for the Global Network & Merchant Services division rose by 3%. On a constant dollar basis, the business expanded by 14%. This shows its continued strong growth.
The billed business includes activities related to proprietary cards, cards issued under network partnership agreements, corporate payments, and insurance fees charged on proprietary cards.
Browse this series on Market Realist: