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American Express: Crushing the Market with Growing Customer Base and International Expansion

American Express posts phenomenal returns, worth over $20 billion.
Expanding customer base and growing international distribution drive American Express's success.
2024/01/30 (Jan 30th, 2024 11:09 am)
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Expanding Customer Base and Premium Brand

While American Express charges an annual fee for its credit cards, it primarily generates revenue from credit card transactions. Merchants pay a small fee to American Express for processing customers’ payments. In 2023, customers spent close to $1.5 trillion on the American Express card network, resulting in $33.4 billion in transaction revenue, accounting for 55% of the company’s consolidated revenue.

Notably, American Express has been gaining traction among younger millennial and Gen Z customers, adding around 3 million new cards to its network each quarter since the start of 2022. Transaction revenue from these age groups grew by 15% year over year in Q4 2023. Despite competition from big banks and other credit card issuers, American Express’s decades-long brand recognition in the United States makes it challenging for competitors to undermine its position in the minds of consumers.

Expanding International Distribution

American Express’s lack of distribution compared to rivals Visa and Mastercard was a hindrance ten years ago. However, the company has made significant strides in this area. In 2014, its merchant acceptance rate in the United States stood at 80%, but it has since grown to 99%. This improved acceptance rate enhances the value proposition for customers and has contributed to the growth of transaction revenue over the past decade. American Express is specifically focused on increasing acceptance in major cities with high spending, including London and Singapore. In 2021, 17 of these priority cities had a merchant acceptance rate greater than 75%.

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Expanding international acceptance provides opportunities for American Express to increase spending among American travelers abroad and attract customers from new markets such as the United Kingdom, Australia, and Japan. This strategic development will be crucial as American Express seeks to continue growing its network’s spending over the next five to ten years, considering its already significant presence in the United States.

All-Time High Stock Price and Attractive Valuation

Following impressive earnings reports, American Express’ stock price reached an all-time high of $202. This year, the stock has delivered a 7.5% return, surpassing the performance of the S&P 500.

For 2024, management anticipates earnings per share (EPS) of around $13, resulting in a forward price-to-earnings ratio (P/E) of 15.5. With steady revenue growth, margin expansion, and ongoing share repurchases, American Express aims to achieve mid-teens EPS growth annually. Considering its low P/E ratio, American Express is well-positioned to outperform the market in 2024 and over the next decade.

Expert Analysis
Unlocking Lucrative Prospects: American Express (AXP) Poised for Bullish Surge as Customer Base Swells and Global Expansion Accelerates
James Anderson

Analysis: American Express (AXP) Set for Bullish Impact with Expanding Customer Base and International Expansion

American Express (AXP) continues to solidify its position as a market leader, poised for bullish growth in the near future. The company's success can be attributed to its expanding customer base and international reach, coupled with an attractive valuation and stock performance.

Expanding Customer Base and Premium Brand

The addition of approximately 3 million new cards to its network each quarter since the beginning of 2022 demonstrates American Express' ability to attract and retain customers, particularly among the younger millennial and Gen Z demographic. Transaction revenue from these groups saw a remarkable 15% year-over-year growth in Q4 2023, indicating a strong trend in customer adoption.

American Express benefits from its well-established brand recognition, making it difficult for competitors to challenge its position in the minds of consumers. This competitive advantage allows the company to generate significant transaction revenue, accounting for 55% of its consolidated revenue in 2023.

Expanding International Distribution

American Express has made significant progress in expanding its merchant acceptance rate, which now stands at an impressive 99%. This development enhances the value proposition for customers and contributes to the company's revenue growth. The focus on increasing acceptance in major cities and markets, such as London, Singapore, the United Kingdom, Australia, and Japan, presents valuable opportunities to increase spending among American travelers abroad and attract customers from new markets.

Expanding its international presence complements American Express' already substantial presence in the United States, providing a strong foundation for further growth in transaction volume and revenue over the coming years.

All-Time High Stock Price and Attractive Valuation

American Express' stock price recently reached an all-time high of $202, outperforming the broader market with a 7.5% return this year. With a forward price-to-earnings ratio (P/E) of 15.5, based on the expected earnings per share (EPS) of around $13 for 2024, the company presents an attractive valuation for investors.

With a focus on steady revenue growth, margin expansion, and ongoing share repurchases, American Express aims to achieve mid-teens EPS growth annually. With its current low P/E ratio, the company is well-positioned to continue outperforming the market, making it an attractive investment opportunity for both short-term and long-term investors.

Conclusion: American Express (AXP) exhibits numerous bullish indicators, supported by its expanding customer base, international distribution efforts, and attractive valuation. The company's ability to attract the younger demographic and its strong brand recognition provide a competitive advantage, while its expanding international presence unlocks new revenue streams. Additionally, the stock's all-time high price and low P/E ratio make American Express an appealing investment opportunity for those seeking steady long-term growth.
How does American Express generate revenue?
American Express primarily generates revenue from credit card transactions. Merchants pay a small fee to American Express for processing customers' payments.
What is the customer base of American Express like?
American Express has been gaining traction among younger millennial and Gen Z customers, adding around 3 million new cards to its network each quarter since the start of 2022. Transaction revenue from these age groups grew by 15% year over year in Q4 2023.
How has American Express expanded its international distribution?
American Express has focused on increasing acceptance in major cities with high spending, including London and Singapore. In 2021, 17 of these priority cities had a merchant acceptance rate greater than 75%.
What is the stock performance of American Express?
American Express' stock price reached an all-time high of $202 and has delivered a 7.5% return this year, surpassing the performance of the S&P 500.
What are the future growth prospects for American Express?
American Express aims to achieve mid-teens EPS growth annually and is well-positioned to outperform the market in 2024 and over the next decade, considering its low P/E ratio.

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