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Low 3Q Growth Expectations for Amex’s Global Network Services

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Global payments network

American Express’s (AXP) Global Network and Merchant Services segment contributes 14% of the company’s total revenues. Its total revenues, excluding interest expenses, fell 3% to $1.1 billion in the June quarter mainly due to its average discount rate partially offset by higher card member spending. In the September quarter, the segment is expected to see subdued growth and a marginal quarter-over-quarter improvement.

The Global Network and Merchant Services segment manages a global payments network that processes proprietary and nonproprietary card transactions. The division also involves merchants and provides point-of-sale products, multichannel marketing programs, and capabilities.

On a constant dollar basis, revenues remained flat. However, the division’s net income stood at $373 million, up by 1% as compared to $369 million in the prior-year quarter.

American Express posted net profit margins of 11% in its last fiscal year. The company’s peers in the industry posted the following net margins in their last fiscal years:

  • Discover Financial Services (DFS): 27%
  • MasterCard (MA): 38%
  • Visa (V): 43%

Together, these companies form 1.9% of the iShares Core S&P 500 ETF (IVV).

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Strong dollar impact

The strong dollar has led to a decline in expenses in line with the revenues. The division’s expenses fell 7% to $547 million in the June quarter as compared to $586 million in the prior-year quarter mainly due to the OptBlue program. Billed business for the division rose 5%. On a constant dollar basis, the billed business expanded 13%, mainly due to an increased spending partially offset by a strong dollar.

The billed business includes activities related to cards issued under network partnership agreements, proprietary cards, corporate payments, and insurance fees charged on proprietary cards.

Next, we’ll look at American Express’s shareholder payouts.

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