American Express: No Quick Fix

Telling investors it's not broken is no comfort as headwinds loom.

American Express isn't broken. 

Well, that's if you take the word of CEO Ken Chenault, whose efforts to appease critics at AmEx's annual investor day on Thursday met tired ears. Promises to boost revenue echoed what the 15-year CEO has been espousing the last few years. Its stock, which has fallen 27 percent in the past year, barely budged. 

The buildup to this particular investor day was significant: AmEx had its worst year since the financial crisis in 2015, which culminated in the loss of a major Costco co-branded card partnership and a steep decline in the company's profits. Plus, earlier this week, Fox Business suggested Chenault was on tense terms with the company's board, which could make it a takeover target. (AmEx said it doesn't comment on speculation.)  1

But after four hours of hearing what Chenault and other executives had to say, most attendees left with an unchanged view: The $57 billion payments behemoth's struggles are real. And to meet earnings per share guidance, it is perhaps overly reliant on cost cuts ($1 billion by the end of 2017) and capital actions like share buybacks.


American Express's cardholder base has been growing faster than its revenue and earnings.

Source: Bloomberg

Unabated and fierce competition from traditional rivals like Visa as well as digitally focused peers such as PayPal remains the biggest impediment to revenue growth. There's a real chance AmEx may be forced to pay more or face losing partnerships with brands like Starwood Hotels (and that alliance still could be in jeopardy, given the chain's pending takeover by Marriott International). Also, card-issuing banks aiming to capture the same business will likely hinder AmEx's newly stated pursuit of increasing loan growth

There are more headwinds. It's dealing with regulatory pressure on so-called discount rates (the fees it charges retailers and other merchants) in Europe and Australia, which could dent revenue. 

And while retaining existing members may require AmEx to offer better rewards (which comes at a cost), recruiting new cardholders -- especially in the U.S. 2  --could be more of a slog than expected. According to Jefferies analysts, AmEx may be rapidly approaching market saturation among its core U.S. customers as its 35.4 million of basic cards outstanding comprise 84 percent of U.S. households with incomes over $75,000. 

Charging Downhill

American Express has had a harder time maintaining revenue growth than its key rivals.

Source: Bloomberg Intelligence

Still, its attempts to woo millennials, a generation known to be fickle when it comes to brand loyalty, may pay off. In a bid to differentiate itself with such an audience, the company has partnered with sharing economy pioneers Airbnb and Uber to allow cardholders to redeem points as payment and in the case of Uber, earn enhanced rewards. 

Also, AmEx's investment in digital channels like mobile as a way to recruit new cardholders has been encouraging. Already, the company's data show half its newly-approved international consumer cardholders signed up digitally and went on to spend 80 percent more than those that joined using traditional methods like snail mail and phone.

A collection of such strategies as well as others across AmEx's small business, merchant and corporate groups, are intended to drive incremental growth -- incremental being the key word.

Low Expectations

26 of 34 analysts surveyed by Bloomberg have a "hold" or "sell" recommendation on the payments company, showing Wall Street isn't overly enthused about its prospects.

Source: Bloomberg

For a company that's trying mightily to convince shareholders it isn't broken, that's no quick fix.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Regarding Amex's takeover prospects, a deal with a big bank is unlikely because it would probably meet resistance from regulators given the size of the company and its assets. Also, AmEx's bank holding company status is a deterrent for a potential suitor such as PayPal.

  2. AmEx's average U.S. cardholder's spend is $13,600 a year. He/she has a FICO score of 764.

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at

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