American Express – My thoughts

Short Blog

One only has to read “The 5 Worst Stocks in the Dow Jones” to get an idea of AXP’s problems. American Express is one of the world’s top consumer brands, a global bank, 3 party payment network, rewards scheme, a talent powerhouse,  …etc.  It’s just amazing to me to see AXP trade at 11 times earnings (~$6B EBITDA) at market cap of $61B while Vantiv trades at 44 times, Paypal at 35x and market cap of $40B.

I’m not saying the market is wrong, but rather Amex has all of the pieces to be great.. the right brand operating in the right model at the right time.. but no ability to change. Amex has a CEO problem… a leadership problem… and a culture problem.  Most know that their multiple hit was due to Costco loss.. in essence the market no longer trusts the management team.  A must read is Bloomberg’s Article “How Bad Will It Get for Amex”. Its like a new chapter in Innovators Dilemma… when you are at the top of the market and there is no where left to go.. what do you do?

Amex’s assets are the envy of the payments world. How can Amex deploy them? I honestly believe Amex has 100 revenue generating projects it could do tomorrow. Better yet, they have 100 capable executives that could run each of them. Amex must learn to pivot from a company managing a cash cow with no risk and in control of everything ….to a platform that can enable 100s of other businesses. Their example should be wirecard (ETR: WDI) a company that has learned to white label several of its core business components.. I call WDI a mixture of Amazon APIs and Citibank.

American Express has a great integrated value proposition at the top. To grow in the middle they must deconstruct their services and give many 3rd parties access…. A prepaid card in Brazil..  an enhance loyalty platform for retailer…  a business payments utility in Africa…

Amex must move from a position of “control” to an enabler of retail, banking and payments. They cannot do this organically… thus I’m making bets that they will use some of their $20B in cash to acquire….  Before they become the western union of payment cards..

Amex needs a new CEO…

My top picks for the job? (who they NEED.. not who they can get). Criteria: Payments, banking, international, issuance, technology, change, partnerships, data, consumer branding, regulatory, …  My short list

  • Judd Linville.. top Amex Alum now CEO of Citi Cards
  • Dan Schulman.. Former #2.. now CEO of Paypal. Amex would need to buy Paypal for this to work.. that indeed would be a fun conversation…
  • Skipping CEOs of Visa/MA.. as they are far too successful to go down to a lesser business like AXP
  • Osama Bedier … Top 5 Payments Executives on the Planet.. and former head of engineering at Paypal
  • Vicky Bindra – Former CEO of MA APMEA / Citi Global Consumer
  • Stephen Bryd – CEO of Citi Retail
  • Bill Wallace – Chase
  • Bob Dimon – Former CEO of Barclays

7 thoughts on “American Express – My thoughts”

  1. Great post but I disagree with you on a fundamental problem – Amex makes money where others don’t want to.
    If you look at Chase/Citi card strategy, they clearly see payments as a distribution platform first and as a PL center second. So that Chase was aggressive in rewards and services, Citi was aggressive in bidding for Costco to the point that some analysts say “it doesn’t make economic sense” (on a stand-alone basis). They are narrowly right but widely wrong – how much would cost Citi/Chase to attract all of those customers to Credit Card and then monetize them with up sell? Using cards, it was basically free…

    Amex doesn’t have the ability to monetize those clients in any way other than interchange.

    Amex better hope is to combine itself with PayPal (terrible on offline and facing issues to raise more capital for lending but ok on on-line) or wish that Apple/Google buy them to behave as a financial arm. Until then, it’s downhill.

    On your suggestion about Brazil – too late, too little. They don’t even have operations in Brazil anymore…

    1. Thanks for taking time to comment. Think we agree more than disagree. I did chuckle at “amex makes money where others don’t want to”.. the other banks DO want to make money the way that Amex does.. but creating a 3 party network and demanding a premium is a tough thing to do.. ask Chase.. they are trying to create Amex from within Chase.

  2. Tom- just one more thing… AX’ failure to do anything meaningful with Revolution Money (aka Serve) is very symptomatic. Looks like the current strategy team is incapable of making any serious innovation work. So far they lead at nothing internally, mismanage acquisitions, are late to the party with winning ideas, and are unable to avoid bad.
    Also, regarding CEO recommendations … I think they should stay away from core establishment… and, at the same time, from those behind Isis and Goggle Wallet.

  3. I agree with Mirek: ex-industry (even Citi – I know you are fond on them, Tom 🙂 person will not be able to change the culture in the needed way.

    Amex is making a lot of money on non-fin transaction (that explains why their IVR system includes financial services in “other services” and ranks them No.4!), I am not sure they have the volume to start seeing fintech as a cashcow – we all know well that there is no money in payments per se.

    The culture sucks indeed – we have wasted months on fruitless (yet, engaging…) discussions with Amex which led nowhere, with no one at their end capable of explaining the “water in the sand” results.

  4. Carlos is right in part re Chase/Citi’s opportunity, but he misses how important Costco was to Amex. Its main value was as a value underpinning to the brand for its millions of high end charge card customers who loved Amex’s exclusivity at Costco. The cobrand deal was secondary to the value/benefit that Costco brought to Amex’s core business and Chenault seems to have not appreciated or valued that. Although Chenault is seen as a strong marketer, the fact is that Amex has been a very weak marketing organization for the last 10+ years and its CMO has been a yes man to Ken. Good news that he is now leaving, but Chenault’s reorganization is just more cost cutting with no real agenda or possibility of driving better growth.
    Amex’s prospects remain dim…. and I say this as a long time shareholder.

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