Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Visa and American Express each announced a small deal this week. One looks pretty interesting and the other a tad perplexing. Given AmEx's tough year, you can probably guess which one was theirs.

Express Train to Nowhere
AmEx has been the laggard among the big credit card and payments networks. The latest deal struck by its Global Business Travel joint venture isn't sending the right message either.
Source: Bloomberg

But let's start with Visa. The $191 billion credit-card company is partnering with Uber to try to create loyalty along the rider-shopper continuum. Visa says that from July 2015 to June 2016 their cardholders spent some $2 billion at local businesses soon after getting out of an Uber. So with their new program, which the companies have dubbed Uber Local Offers, customers using their Visa cards at participating local stores and restaurants will earn points that translate into discounts on their Uber travel rather seamlessly. A hundred points gets you $10 off a future ride. (Sorry, Uber-dependent New Yorkers, for now it's being rolled out in San Francisco and Los Angeles only.)

Don't get me wrong -- this is a pretty small deal for Visa. But it certainly makes sense as yet another way to ensure people are using their Visa cards, especially as the program is scaled up. More important, it shows that Visa's got the right ideas. As city dwellers know, Uber riders are often on their way out to dine or shop somewhere, so this program incentivizes them in terms of where to go, how to pay and how to get there. It creates a nice symbiotic relationship between two market leaders. 

Uber is the most used taxi app in 108 countries (check out the map in this article), and its bookings surged above $5 billion in the second quarter, up from $3.8 billion in the first three months of the year (though it still loses quite a bit of money). Meanwhile, Visa and Visa Europe, which were reunited this year, processed a combined 39 percent of global card payment volume in 2015, according to Bloomberg Intelligence. That compares with 5 percent for AmEx.

Seeking Growth
AmEx's credit card volume growth has fallen behind that of Visa and MasterCard -- and recently by a wide margin, notes Bloomberg Intelligence analyst David Ritter.
Source: Bloomberg Intelligence

AmEx's deal this week, while tiny, speaks volumes. The $61 billion company's Global Business Travel (GBT) joint venture acquired KDS, a corporate travel technology provider, for an undisclosed amount. Here's why it's a head-scratcher, as Macquarie analyst Vincent Caintic pointed out in a note Tuesday: Hasn't AmEx been trying to downplay its business travel exposure? For one, it carved out the GBT division in 2014 so that it's now half-owned by an investor group, which includes Qatar Holding, and is no longer consolidated in AmEx's financial results. That same year, Concur Technologies, the business travel technology enterprise in which AmEx owned a 13.5 percent stake, was sold to German software giant SAP. KDS competes with Concur.

Furthermore, the prospects for the corporate travel market are a bit iffy. On the one hand, yes, increasing globalization should drive business travel and create the need for end-to-end booking and expense-management software. The $1.2 trillion spent in 2015 is about double the sum for 2000, according to the Global Business Travel Association Foundation. That said, the organization also notes that it's become more volatile as we've "entered an era of uncertainty marked by moderate growth." 

As such, Macquarie's Caintic is concerned that AmEx "is fighting the wrong battle" against the major banks, while Visa hits the "right buttons" (pun intended?) with its Uber deal. AmEx is falling "behind the capabilities of Visa and MasterCard." No wonder its valuation has, too.

Bargain or Deserving Discount?
AmEx's price-earnings ratio has come down substantially since 2014. These days, it's valued more like a big lender than a fintech company or payments network.
Source: Bloomberg

It's worth nothing that AmEx was an early mover on the Uber front. The companies launched a mobile loyalty program together back in 2014 allowing U.S. cardholders to choose to either earn double points or redeem points on Uber rides. (The points must cover the full ride tab, with every dollar costing 100 points). But there's plenty ailing AmEx, which is why it needs to be particularly shrewd in its growth strategy, even when it comes to tiny purchases. 

The Gadfly grade for AmEx's latest move is a C. Visa and Uber get an A (although I should deduct points for choosing to launch on the West coast).

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Discounts like this are good for Uber, too, as upstart competitors such as Juno in New York are try to undercut it. 

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net