American Express Is Targeting a Revival in the Next Few Quarters
International business
American Express’s (AXP) International Card Services’ total revenue net of interest expense fell by 5% to $1.3 billion in the December quarter. It formed 15% of the company’s total revenue—compared to $1.4 billion in the same quarter last year. On a constant dollar basis, the revenue rose by 6% mainly due to higher card spending. As the dollar stabilizes, international revenues are expected to post nominal growth in 1Q16. The market expects the US dollar to stabilize or decline in 2016. The Fed is expected to raise rates slowly.
Over the past few quarters, US companies’ revenue fell due to the strong dollar. This trend is expected to continue as the global economy slows and the Fed considers raising rates again in 2016. The net income for American Express’s International Card Services division rose to $73 million—compared to $33 million in 4Q14.
American Express achieved net profits of $5.2 billion last year. Here’s how some of its peers in the payment processing industry fared with their net profits in the last year:
-
Mastercard (MA) – $3.6 billion
-
Visa (V) – $5.4 billion
-
Discover Financial (DFS) – $2.3 billion
Together, these companies account for 1.9% of the iShares Core S&P 500 ETF (IVV).
Benefit for expenses
As a result of the strong dollar, American Express saw a fall in its total expenditure by 11% to $1.1 billion in 4Q15—compared to $1.3 billion in 4Q14. On a constant dollar basis, expenses fell by 4% from the previous year. This included a portion of the company’s restructuring charge. American Express’s card billed business fell by 3% in 4Q15 to $83.3 billion due to the strong dollar. On a constant dollar basis, billed business rose by 8%. The company’s cards-in-force rose by 5% to 60.2 million—compared to 57.3 million in 4Q14.
American Express is spending its total allocated resources on the following:
-
30% on cardmember acquisition
-
30% on cardmember engagement, expansion of merchant coverage, lending on charge, and international lending
-
30% on other initiatives such as brand, service, technology, control, and compliance
-
10% on digital spending and its loyalty coalition business
Browse this series on Market Realist: