On March 7, 2018, American Express (AXP) held its Investor Day, which focused primarily on its business model, avenues for investments, and insights regarding the payments industry. In its discussion on its business model, management stated that the company has a wide reach and diverse customer base.
AXP’s revenues in 2017 were comprised mostly of fees and spending revenues. According to the company’s investor presentation, out of its total revenues, 75% was comprised of revenues garnered from fees as well as spending after deducting reward costs. The remaining 25% was from net interest income.
Opportunities in the payments industry
According to the investor presentation, there is ample scope to see growth in the payments industry in commercial payments and the consumer segment. Since the digitization trend is picking up, there’s a high probability that digital payments will be adopted by customers.
American Express focuses on the following four areas:
- It plans to strengthen its position with respect to the premium consumer segment.
- It plans to further improve its position with respect to commercial payments.
- It plans to further improve its global network.
- It’s focusing on making investments in digital tools so customers can easily access digital methods.
American Express’s free-cash-flow yield is 5.2% on an LTM (last-12-month) basis. Peers (XLF) Western Union (WU), Ally Financial (ALLY), and Green Dot (GDOT) have yields of 1.1%, -10.7%, and 2.5%, respectively, on an LTM basis.