How Much Could American Express Be Affected By Bitcoin Adoption?
The growing popularity of Bitcoins and other cryptocurrencies over recent months has made the widespread adoption of blockchain technology for settling financial transactions a very real possibility. Given these circumstances, it makes sense to understand how the largest payment companies in the world would be affected if companies that offer blockchain-related settlement services eat into their transaction volumes.
We have created a series of interactive models which detail how a 5% reduction in total transaction volume for the three largest payment processing companies in the world – Visa (V), Mastercard (MA) and American Express (AXP) – affects their market price. This article focuses on the interactive model for American Express. You can modify assumptions such as earnings multiples, total transaction volumes, fees as % of transaction volume, effective tax rate and others to see how sensitive American Express’s shares are to its transaction volume.
We maintain a $88 price estimate for American Express’s shares, which is about 10% below the current market price.
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As detailed in the chart above, a decrease in American Express’s transaction volume by 5% could reduce its 2018 EPS by $0.16. Using Amex’s current forward P/E ratio of 14.4, this would represent a potential ~$2.35 decline in the bank’s share price – or a downside of nearly 2.5%. This is justified, given the fact that transaction-related revenues constitute over 50% of Amex’s total revenues.
That said, American Express has been one of the early adopters of the blockchain technology among financial institutions – becoming the first card lender to integrate its services with a bitcoin wallet. If American Express continues its push in the cryptocurrency space over coming years, it could more than make up for this lost revenue by taking a more direct role in the industry in the long run.
Think our estimates are off? Create your own estimates by changing the inputs in our interactive model.
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