American Express (NYSE:AXP) will release its fourth quarter result on Thursday, 19th January 2012. We expect higher online sales to boost revenue of various credit card companies, such as Visa (NYSE:V) and MasterCard (NYSE:MA) and AmEx. Sustained efforts to improve credit quality and investment in various growth initiatives will probably help the company post greater gains in this quarter compared to same quarter in the previous year.
Our price estimate for American Express’s stock is $51, which is in line with the current market share price. We will update our price estimate after the year-end results are reported by the company.
Card transaction fees should rise
Online sales surged during the holiday season of 2011. According to comScore, through December 26, holiday season retail e-commerce spending went up by 15% compared to 2010, to reach $35.3 billion.  This jump in sales should help boost revenues for the company, which depends heavily on customers’ spending using their AmEx cards. Transaction and execution fee revenues make 71% of Trefis price estimate for AmEx.
Growth in digital
The company is actively looking for avenues to invest in its digital platform. It has set aside a dedicated a $100 million fund to identify and participate in growth opportunities in the developing online payment industry. It has also forged partnerships with Facebook, Zynga, Verizon, Sprint, Vente-privee and others in order to increase its presence in this sector, as competitors like Visa and Mastercard are also investing in digital commerce. Though, these opportunities might pose some pressure on its bottom-line initially due to the costs involved, we believe the increase in revenue will overbalance the decline.
Introduction of prepaid cards under the name ‘Serve’ gives the company a chance to expand its reach to lower income groups, without hurting its brand image as the card of the affluent.
We think that all these initiatives position the company to grow even in the current tumultuous economic conditions and provide positive returns to the shareholders as it has done in the past.Notes:
- Final Christmas Push Propels U.S. Online Holiday Spending to $35.3 Billion, Up 15 Percent Versus Last Year, comScore Press Release [↩]