We came across a bullish thesis on American Express Company (AXP) on Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on AXP. American Express Company (AXP)’s share was trading at $255.38 as of April 14th. AXP’s trailing and forward P/E were 18.23 and 16.75 respectively according to Yahoo Finance.
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American Express (AmEx) differentiates itself in the global payments industry with its vertically integrated business model, which is distinct from the networks of Visa and Mastercard. Unlike these competitors, which primarily serve as intermediaries facilitating transactions between cardholders and financial institutions, AmEx both issues cards and processes payments through its closed-loop network. This model provides AmEx with complete control over the transaction flow, allowing it to develop direct relationships with its affluent cardholders. These relationships enable the company to capture higher transaction fees and offer tailor-made services to its premium customer base, enhancing customer loyalty and revenue generation.
Although AmEx accounts for only 4% of global credit cards, its transaction volume is disproportionately large, handling $1.7 trillion annually—about 9% of global volume, with a dominant 19% share in the U.S. The strength of its premium customer base is key to this success, as AmEx cardholders spend significantly more per transaction compared to users of competing networks. The average transaction for an AmEx cardholder is $150, far outpacing Visa’s $94 and Mastercard’s $91, allowing the company to charge higher merchant fees while maintaining competitive acceptance levels. Despite still trailing its peers in terms of acceptance breadth, AmEx is narrowing this gap, as merchants increasingly recognize the value of attracting high-spending customers.
AmEx’s revenue model is notably diversified, with 53% of its 2024 revenue projected to come from merchant fees, while 13% stems from cardholder fees—a fast-growing, recurring stream similar to subscription-based services. Additionally, AmEx generates 24% of its revenue from net interest income, which comes from lending operations. Although this is a smaller proportion compared to traditional banks, it remains a stable source of income. The company’s focus on high-income individuals also helps to mitigate credit risk, with delinquency rates significantly lower than those of its peers. The company’s delinquency rate stands at 1.3%, far below the 4% rate seen at competitors like Capital One.