I’m sympathetic to the American Express Company (AXP) stock owners who have held firm in the 21st century — the stock has been an absolute loser. Well, technically it’s up 30% in a little over 16 years; a lousy return, and a full 13 percentage points lousier than the S&P 500 itself.
The 90’s were much better for shareholders: AXP stock shot 400% higher, quintupling in value in just 10 years. We may never see those sorts of gains again with American Express … and we certainly won’t see the stock double anytime soon at its current growth pace.
But first-quarter earnings are coming up today after the bell, and shareholders should know what to expect. So, here’s what you should expect:
Not much.
AXP Stock: It’s As Ho-Hum as It Gets
American Express, alongside Visa Inc (V) and Mastercard Inc (MA), is indeed one of the three major credit card companies in the world, which you’d expect to be a major boon for shareholders these days as cash increasingly goes the way of the dodo bird.
But no — AXP is actually losing shares while Visa and Mastercard reliably crank out higher and higher revenues with each passing year.
Amex saw revenue fall 4.2% in 2015, and Wall Street projects revenue to fall 1.2% in both 2016 and 2017 as well. Visa and Mastercard? They’ll be fine. Analysts see those two growing sales by 7% or 8% this year then by double-digits in 2017.
So the obvious question that any AXP stock owner asks is: Why is this happening?
The simple answer: American Express has lost a few major merchants and a whole lot of small business merchants over time because of the high cut it takes with each swipe of the plastic. The “discount rate” is the vig that these companies set aside for themselves on every transaction, all around the globe. Visa and Mastercard are extremely competitive here, and have rates usually between 1.5% and 3%.
Not AXP.
Amex, which takes a bigger cut largely so it can afford to provide more benefits to its card holders, starts at 2.3% for its very lowest discount rate, and depending on the type of transaction, often insists on 3.5%. Over time, after thousands and millions of swipes, those “small” percentages start to add up into very large dollar figures.
That’s precisely the reason why, after an exclusive 16-year relationship with Costco Wholesale Corporation (COST) that made AmEx the exclusive credit card of the bulk retailer, Costco put the contract up for bid. American Express was infuriated, but in classic Costco fashion, the company considered AXP “just another vendor” and the new exclusive contract went to Visa.
Visa also stole AmEx’s relationship with Fidelity earlier this year, although that loss wasn’t quite as painful.
The Costco loss will begin to manifest itself later this quarter, when, on June 20, Costco will start accepting all Visa credit cards — not just Costco-branded ones.
As for Q1, analysts think AXP stock will earn $1.35 per share, 8.8% less than the year-ago quarter. Analysts expect revenue to come in mostly flat at $7.99 billion, up just 0.5% from Q1 2015.
In other words, AmEx is looking pretty forgettable right now.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
