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How American Express Can Expand Its International Business

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Strong dollar to remain

Over the past few quarters, US companies have witnessed falls in their international revenues due to the strong dollar. This trend is expected to continue, as the Fed is expected to raise interest rates in the current or upcoming quarter.

However, the dollar is expected to stabilize at its current levels, as its appreciation has been priced in over the past few quarters. American Express’s (AXP) International Card Services division’s total revenues net of interest expense fell by 11% to $1.2 billion in 3Q15, forming 15% of the company’s total revenues, compared to $1.4 billion in 3Q14.

On a constant dollar basis, revenues rose by 4%, mainly due to higher net card fees and a rise in revenues from American Express’s Loyalty Partner business. Net income for the International Card Services division fell by 37% to $89 million, compared to $142 million in the prior year’s quarter.

The division’s profitability fell largely due to the strong US dollar. The company’s card-billed business fell by 8% in 3Q15 to $79 billion, mainly due to the strong dollar. Its cards-in-force rose by 5% to 59.4 million as compared to 56.6 million in the prior year’s quarter.

In the first nine months of 2015, revenues fell by 10% to $3.7 billion as compared to a 6% rise in the US card business. Pretax income fell by 3% to $433 million.

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Strategy for expansion

American Express is spending 30% of its total allocated resources on card member acquisition, 30% on card member engagement, expansion of merchant coverage, lending on charge, and international lending, 30% on other initiatives such as brand, service, technology, control, and compliance, and 10% on digital spending and its loyalty coalition business.

As a result of the strong dollar, American Express saw a fall in total expenditure of 6% to $1 billion in 3Q15, compared to $1.1 billion in the prior year’s quarter. On a constant dollar basis, expenses were up by 4%, mainly due to increased spending on growth initiatives, primarily within marketing.

American Express achieved net profits of $5.9 billion in the last fiscal year. Here’s how some of American Express’s peers in the payment-processing industry fared with their net profits in the last fiscal 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).

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