The American Express Company (NYSE:AXP) is a global services institution, specialized in charge and credit cards. Half of its revenue comes from merchants, charging them a discount rate for each transaction processed. Cardholders are the other major source of revenue, paying annual fees and interest charges on balances.
It is the largest U.S. credit–card lender, based on purchasing volume. American Express reported its third quarter financials which revealed a bit lower growth. Despite slower growth, the company managed to increase EPS by 6% with and 8% increase in cardholder spending domestically, together with 6% global increase.
Mixed Financials
Earnings per share for the fourth quarter was $0.56 per share according to the American Express Company (NYSE:AXP) release. The firm had revenue of $8.1 billion, up 5 percent from the same period a year ago. Excluding the restructuring costs and other charges, the company earned $1.09 in the quarter, that’s 8% higher than last year’s $1.01 per share.
Analysts had been anticipating earnings per share of around $1.12, excluding some items. The company earned $1.09 excluding items in the fourth quarter of 2012, matching its earnings in the third quarter of the year. Revenue was lower, having hit $8.4 billion in the third quarter of 2012.
American Express Company (NYSE:AXP) has announced that it will lay off 5,400 of its staff. and has announced restructuring costs of $400 million for the fourth quarter of 2012. The news was delivered alongside the company’s earnings results for the last three months of 2012.
Blue Bird
The new Blue Bird by American Express allows customer freely utilize a prepaid debt card without monthly and yearly fees. Blue Bird is a reloadable debt card which customers can use at any retail counter accepting American Express. The company will get the transaction fee from the retailer, though it will not make any money on interest or expenses as it do with its traditional credit and charge cards.
The specialty of Blue-Bird is that it allows the customer to experience the freedom which credit card offers, without actually being an American Express Credit card holder. The card at present is being offered in Wal-Mart Stores, Inc. (NYSE:WMT) stores all over the nation. Wall mart has a large retail base that do not engage in traditional banking.
Offering a prepaid debt card to customers where they shop and assisting them with the name of American Express, provides a huge opportunity to acquire new customers, and in the process get millions more transactions every year.
Threats
The threat comes from the new near field communication technology in Smartphones which poses a potential risk for credit card companies. But, this is not the real threat if the technicals are analyzed. The NFC technology is just a way to pay for an item using an electronic device, most commonly a smartphone. But, the card companies will still process the transactions and take a cut on the total amount.
The real challenge to American Express comes from eBay Inc (NASDAQ:EBAY)’s Pay Pal program. It has already begun rolling out a new point of sale system in Home Depot locations around the United States.
Besides all challenges, Blue Bird backed by the name of American Express, will be a success in 2013 and beyond.
Partnership with Microsoft
American Express Company (NYSE:AXP) entered into a partnership with Microsoft Corporation (NASDAQ:MSFT).This move will allow the cardholders to receive merchant discounts through the Microsoft’s X-box video game system. This comes as the latest move from American Express, to pitch into the progressively more crowded merchant-deals market. Since last year, the company has entered into partnerships with social- networking companies Facebook Inc (NASDAQ:FB), Twitter Inc. and Foursquare allowing cardholders to sync their American Express accounts to their profiles on the firms’ platforms.
Positives
Opportunity for the growth of American Express can also be seen oversees. The company launched prepaid travel card in India. The card, sold at moneychangers and available throughout the subcontinent, can be preloaded with U.S. dollars, Euros, or Pound Sterling.
In Canada, the company is offering an American Express gold card through Scotiabank, or The Bank of Nova Scotia (NYSE:BNS) (TSE:BNS), making Scotiabank the only major Canadian bank to offer an American Express card in Canada.
In a survey conducted by J.D. Powers and associated, American Express is the number one in customer satisfaction. The survey included nearly 14,000 customers. The survey asked the customers about their experience with the issuer’s terms, billing and payment process, rewards program, benefits and services, ability to resolve problems and accessibility. According to the customers, American Express turned out to be the best in all categories. It outperformed the other competitors in the area of communicating with customers and offering attractive rewards. The competitors of American Express like Capital One Financial Corp. (NYSE:COF) and Discover Financial Services (NYSE:DFS) service could not match to American Express.
Conclusion
AXP management repeated the commonly held view that traditional payment networks are doubtful to be disintermediated because of the challenge a new network would face and the expenses it would incur creating global authorization capability, managing fraud risk, and driving merchant acceptance. In the shareholder meeting, the management discussed over the competition and the long term revenue growth. Management noted that the competition has turned down for a few time, and the competitors may reduce market spending further as the tailwind from reserve release ends in 2013. The management also expected approximately 8% revenue growths and net interest income growth would be more modest.
The product Bluebird from American Express is performing better than what Wal-Mart Stores, Inc. (NYSE:WMT) expected. The product has still to go a long way but shows strong potentials ahead. The operating leverage may play a crucial role in the strong performance, in 2013. The ability of the company to generate revenue faster than the expenditure will probably give strong results. American Express is a foremost brand and creates value for investors. The company is a good investment from the perspective of Valuation and the financial performance.
