What Would Happen If American Express Can Keep Its Transaction Fees High
American Express (NYSE: AXP) has tried to keep the distribution of cards issued such that only customers with a potentially high rate of spending get access to them. This allows the company to charge a high transaction fee and hence generate more revenue. The company’s revenue from transaction fees is roughly two thirds of its overall revenue. Therefore, keeping it growing at a good rate is important for the company. However, we expect the company’s transaction fee rate to decline going forward.
The table below models two scenarios and compares them against our expectations for the company. In the first scenario, the company’s transaction fee charged on cards in the U.S. does not decline and instead returns to 2013 levels. This could result in a 9.2% increase in our price estimate for the company. In the second scenario, the transaction fee charged declines faster than expected, resulting in a 7.9% decline in our price estimate for the company.
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Have more questions about American Express? See the links below:
- How Much Did American Express’ Revenue & Net Profit Grow In The Last Five Years?
- How Much Can American Express’ Revenue Grow In The Next Five Years?
- What Is American Express’ Fundamental Value Based On Expected 2016 Results?
- How Has American Express’ Revenue Composition Changed In The Last Five Years?
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