As of 20 Aug 2020

Exec Summary (<50 words)

1. Deceleration in spending (due to c-20) to come back slowly by 2022 (assume some proportion of T&E spend by large co's permanently goes away due to switch to virtual, say 50%)
2. High revenue/earnings growth sustained in the past ( +8% / 10%) and will continue after the c-20 blip
3. T&E is only 22%; US SME is 1/4th billings, with US consumer at 1/3rd. Diversified user base vs traditional perception of Amex as elite man's card.

Baseball Stats

Founded: 1850

Employees: 60k

MarketCap ('20 Aug'20 ): $78B

3yr Return: 6%

6 yr Return: 2%

10 yr Return: 9%

5Yr Rev growth: 3%

5Yr Net Inc growth: ~5%

Rev: $47B ('19)

Net-Income: $6.6B

Key Investors

Berkshire Hathaway - 18% (didn't sell a single share in covid)

Vanguard - 6%

Recent buyers

1. Vikings Global
2. Dodge & Cox
3. JP Morgan asset
4. DeutscheBank
5. Blackrock
6. Tybourne

Recent Sellers

1. Fidelity
2. Wellington

Company description

1. Provides global credit cards (integrated issuer-acquirer-processor model), loans and services.
2. 3rd largest card network post Visa/Mastercard. Earns much higher MDR. Also provides processing services for payment network
3. Amex offers ~40 different cards (20 cobranded, ~20 unbranded); maintains relationships (cobrand) with Amazon, Delta Airlines, Hilton, Lowe’s, and Marriott & 4 FIs → Ameriprise, Charles Schwab, GS and Morgan Stanley.
4. Has ~114M cards in circulation that process $1.2Tr spend annually.

• Targets premium high spending customers (3x avg spend per card); Market share of ~35% US credit card spending, 30% of US credit card borrowing;

Revenue drivers

1. Merchant Discount Rate (MDR) → 60% (Charges ~2-2.5%,; ~2.38% net reported, 2.1% actual)
2. Net interest income → 20%
3. Card Fees → 9%
4. Others → 11% (o/w only 3% Cross-border)

Unlike popular perception, more than 75% of Amex card spend is non Travel/entertainment ('19)

Multiples/Valuation

1. Long term avg at 13-14x PE

2. History repeats itself - see 2009 crisis repeating in terms of graph. EPS to come back in 2-3 yrs (despite Covid crisis direct relation to lesser Travel/Ent spend as permanent shift)

   

   Amex share price perfectly- inversely correlated to jobless claims

   

   Source - Analyst reports

Detailed notes

Revenue buildup

• Revenue split
• Cards / Loans
• Premium cards, high marketing/rewards/customer acq spend

Coverage

• Coverage has been significantly expanded by offering lower MDR to smaller merchants (equal to Visa/MA) via brand called OptBlue

Increasing share of wallet

• More products offerings like installment loans (12 countries live), split the bill via Venmo/Paypal,
• Expanding 'Pay it, Plan it' to all card offerings now (mass affluent segment). Converting >$100 purchases in to installment loans

SMB Business

• Focused on professional services - Real estate, legal finance, insurance - 14%, Construction is 10%, Healthcare 5% and Restaurants - 3%
• Gives Business loans, already is largest CC issuer to small businesses in US