American Express 2020 Stock Price

The History of American Express

American Express (also called Amex) is a very old company, in business since 1850. Their presence in the market for 170 years is a proof of business resilience and her ability to adapt to an ever changing market demand in the travel/hospitality industry. Amex provides a wide range of services to the wealthy (medium to high tier) businessman on the go. Among said services, Amex clients can benefit from access to airport lounges, discounts at selected hotels, cashbacks, dispute handling services, business expenses management services and a number of insurance packages to cover all aspects of a trip.

The same services are also extended private-labelled to third-parties who are looking to offer the same level of hospitality to their customers. For example, KLM issues Amex-branded cards to her gold members who in turn benefit from premium services while traveling.

The revenue model is based on:

1. annual fees for cardholders (ranging from ca. EUR 60 to 700),

2. credit interest,

3. insurance,

4. transaction fees (since they are a payment network, just like Mastercard or VISA).

Understanding the Competitors

Amex competes in the global payments industry with card networks (i.e., Mastercard, Visa, JCB, China Union Pay, Discover Global Network and other small national networks), issuers and acquirers, paper-based transactions (e.g., cash and checks), bank transfer models (e.g., wire transfers, SEPA and Automated Clearing House, or ACH), as well as evolving and growing alternative payment and financing providers (Paypal, Venmo, Alipay, WeChat Pay). As the payments industry continues to evolve, Amex faces increasing competition from non-traditional players that leverage new technologies, business models and customer relationships to create payment or financing solutions.

Being a card issuer, Amex competes with financial institutions that issue general-purpose charge and credit cards and debit cards. They also encounter competition from businesses that issue their own private label cards, operate their own mobile wallets or extend credit to their customers. Amex faces intense competition for cobrand relationships, as both card issuer and network competitors have targeted key business partners with attractive value propositions.

The principal competitive factors that affect the card-issuing, merchant and network businesses include:

• the features, value and quality of the products and services, including customer care, rewards programs, partnerships, benefits and digital and mobile services, and the costs associated with providing such features and services,
• its reputation and brand recognition
• the number, spending characteristics and credit performance of customers.

American Express Position in the Market

I think there are 2 BIG factors that give American Express a strong position in the travel/hospitality and financial services market.

First of all, Amex has a strong brand name associated with social status. Owning an Amex card is synonymous to wealth and premium services.

Second, due to the wide network of partners (airports, merchants, insurances etc.), the average Amex customer would not switch, nor cancel the card unless under very unlikely circumstances (e.g., extreme change in their personal financial situation).

Using Charlie Munger’s so called moats (the moat is the deep, wide ditch occasionally containing crocodiles 😛 you would find around a castle), Amex has a brand and switch moat.  If you wanna know more about the moats, you can find a great, comprehensive explanation on Invested, written by Danielle Town (great investor, daughter of Phil Town, another great investor in this world!).

Financials

Here’s my summary of Amex financial position as of the latest data publicly available. You can find this information in their 2019 annual report. You can alternatively look at other consolidated filings on their investor relationship website, if interested.

Pricing Estimate

At this point, we are ready to take a deep dive into the 2019 annual report and determine a “fair” price for American Express. I will share the detailed estimation in a different article. In the meantime, get familiar with the pricing method called Owner Earnings, the one I shared in Owner Earnings Formula Part 1/2 and Owner Earnings Formula Part 2/2 and I’ll see you in the coming days to talk to you through it and apply it to Amex.