New York based American Express Company (AXP, Financial) presented its business strategy for this year during the annual investor meet held on March 25. There was a presentation given by the CEO Kenneth Chenault which highlighted an earnings guidreance figure of 12-15% for the entire year. But investors were sceptical about the ability of the company to achieve the ambitious number, when last year it could barely manage to attain 50% of its annual revenue growth guidance of 8%. Let’s check in and find out how the company’s projections do not match the analysts’ or investors’ expectations.
Lacklustre investors’ meet
The company tried convincing the investors that it will accelerate renewals, hurrying its footprints in business to business consumer and small business payments category and improving its global network services business in the near term. Critics have pointed out that the company will need to shell out a good amount of money to realize these goals. Investors are demanding transparency from the company in lieu of its dealings with existing (renewals) and new clients; thereby wanting to know the difference these new deals will make to the company’s bottom line and whether they all put together will be anywhere close to the size of Costco Wholesale Corporation (COST, Financial) business. The company also failed to answer the queries about the future of the existing Costco co-branded card holders or the Costco loan book. Last week, it also announced a co-branded cards deal with Charles Schwab. The two new co-branded cards will be operational in early 2016.
In the backdrop of severe competition that is eating into its market share, Amex is struggling to stay afloat. In the wake of being unable to achieve targets, the company had announced 4,000 job cuts in January 2015. Sceptics argue that this decision has failed to meet the desired revenue targets in the short run. Amex was the fifth worst performing stock on Dow last year.
Analysts suggest unwise move
According to some analysts, the company’s decision to not renew the 16 year long business relation with Costco for co-branded cards is believed to have cost 10% of its business. In its defence the company said that it didn’t make economic sense to renew the contract due to the impossible demands laid down by Costco. Those demands included rigid non-competes clause which had made it impossible for Amex to sign on new deals like Plenti, a multi partner loyalty collation point based programme which it bagged last week. Amex lost the Costco business to Visa Inc. (V, Financial) and Citigroup Inc. (C, Financial).
Accusations of unfair practices
The company is also appealing an antitrust law brought by the justice department of Brooklyn in February 2015 accusing the company of prohibiting merchants from steering consumers to use lower cost credit cards. Earlier in 2010, the company had been sued over with similar allegations forbidding merchants from recommending the customers about the most cost effective card for their transactions at the POS.
The lacklustre investor meet on Wednesday affected the stock movement on March 26, 2015. By the end of the trading hours the stock fell 2% to close at $78.48. The stock record for past one year reveals a series of ups and downs. A year back it was trading in $90 bracket, indicating a drop of more than $10 in a year.
Conclusion
The investors meet left most investors dejected in the absence of plausible responses to most of the daunting questions they had regarding the company’s future. There is no doubt that the company is getting some new deals up its sleeve but will it be able to compensate the volumes lost to Visa through the Costco deal is something that only time will tell. Amex needs to get its acts together before it is too late to recover from the ground lost to competition.
