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American Express made a total revenue of $52.9 billion in 2022. Although it has impressive earnings, it faces competition from other credit card companies like Visa, MasterCard, and Discover.
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To differentiate itself, Amex focuses on serving its customers who use their card frequently and spend a lot of money.
Amex's Revenue
Amex's revenue has increased over 32% since 2017 and shares of the company have shown resilience and growth in a tumultuous market.
The company is considered a quality compounder with steady and stable growth in revenues, high single-digit to 10%, and low double-digit earnings growth.
Competition in the Credit Card Industry
Amex faces competition from Visa and MasterCard who dominate the credit card industry. However, Amex has learned from the challenges posed by the competition, diversified its business model, and sharpened its focus on its customers. This has led to the company's impressive growth.
Amex's Customer Base
Amex appeals to customers by offering premium perks, such as Walmart Plus membership, Uber Cash, and other rewards that keep customers using the card. This has helped the company grow its loyal customer base and achieve impressive growth.
Growth and Resilience
Amex's revenue has increased over 32% since 2017 and shares of the company have shown resilience and growth in a tumultuous market. The company has learned from the challenges posed by the COVID-19 pandemic and has come back strong.
The Secret to Amex's Success
Amex's success can be attributed to its focus on its customers and its unique network. By offering premium perks and rewards, Amex has grown its loyal customer base and achieved impressive growth.
Amex's History
American Express began as a freight forwarding company in 1850 and transformed into a payments company in the late 19th century. It introduced its first charge card in the 1950s and has since introduced multiple products, such as the gold card and platinum card.
Amex's Unique Network
Amex operates in a closed-loop system, where it functions as the issuer, acquirer, and network combined. This allows the company to see exactly what their customers are spending and tailor rewards and deals accordingly. The closed-loop system also enables Amex to earn money from interest, unlike Visa and MasterCard.
Amex as a Lender and a Card Network
Amex is both a lender of credit and a card network, which is different from Visa and MasterCard who are only card networks. This enables Amex to see more information about customer spending and tailor rewards and deals more effectively.
Interest Income
Amex generated about $9.9 billion in net interest income in 2022. This is an advantage for the company as it diversifies its revenue streams.
Discount Revenues
Discount revenues, or fees charged to merchants that accept Amex cards, brought in more than $30 billion in 2022, contributing to over 58% of Amex's total revenue net of interest expense.
Amex charges a premium to merchants to accept its cards, and merchants are willing to pay the premium because it brings them the most affluent and biggest spenders.
The discount rate charged to merchants can vary by merchant size but is typically around 2.5%.