-
By adding new card holders who increase their spending, American Express has a clear growth playbook.
-
The business has historically been able to raise the annual fees it charges for its cards, exhibiting pricing power.
-
After seeing the stock’s current valuation, investors might be more cautious.
It seems like there are an unlimited number of companies out there offering credit cards. That might be the case, but American Express (NYSE: AXP) stands out above the crowd. Founded in 1850, the business has carved out a dominant position at the premium end of the market. And this has resulted in durable success.
This financial stock has generated a total return of 238% in the past five years (as of Dec. 12), crushing the overall market. Where will American Express be five years from now?
I have a very high degree of confidence that American Express’ business will be bigger and more powerful five years from now than it is today. Of course, the gains going forward might not resemble the past. But management is optimistic about the company’s future. It previously revealed a goal for revenue to increase at a compound annual rate of 10% in the long run, with diluted earnings per share rising at a mid-teens yearly clip.
The company’s growth playbook is simple. It starts with acquiring more card members. Between the third quarter of 2020 and Q3 2025, this figure grew by 36%, with American Express now counting 151.2 million active cards. It’s encouraging to see the business bringing on younger customers. The leadership team said on the latest earnings call that Gen Z and millennial consumers have strong engagement.
Another factor is getting these card holders to increase their spending over time. The average spend per card was $6,387 in Q3, up 58% in the last five years. By being accepted at more locations worldwide, while also consistently introducing valuable partnerships and rewards, the value proposition can speak for itself.
Another factor that can have a notable impact on the company’s success is pricing power. American Express’ strategy involves occasionally raising the yearly fees on its cards. The Gold card saw its fee increase to $325 last year, while the Platinum card’s fee was hiked to $895 this year. Average fee per card has jumped 72% since Q3 2020.
It might seem silly that people would pay annual fees to be able to use a specific credit card. This is a key part of how the industry operates, though. And American Express excels in this regard, thanks to its incredible brand strength. In the minds of consumers, being able to pull out an Amex card when paying for something might feel like status signaling.
