Should You Invest in American Express?
American Express Company is a financial technology company. It mainly offers transaction solutions to its millions of customers around the world. Products include cards, payment software and hardware, as well as several other solutions to small, medium, and large businesses as well as individual customers.
Why You Should?
- The world is shifting away from cash to a more digitized payment method. American Express stands to benefit from this shift in consumer trends as it offers several ways to digitize payments (cards and apps). It also offers software and different solutions to make accepting digital payment more efficient.
- The COVID-19 Pandemic has sped up this shift to digitized payments as consumers order more online and seek for more contactless services. This involves more digitized payments which is why American Express stands to benefit from this.
- American Express has been invested to improve and innovate products for its consumers. For example, American Express recently acquired Kabbage, which will help it innovate its platform for small businesses. This continued innovation will keep it ahead of the competition and benefit the company in the future.
- American Express has seen strong sales for the reasons mentioned before. This has led it to see a rise in revenues and profits over the past couple of financial years. This has benefited the company’s current and future growth as well as allowing the company to build a stronger balance sheet. In the financial year of 2019, the company reported revenues of around 40 billion dollars and profits of around 6.75 billion. In the financial year of 2018, the company reported revenues of around 37 billion dollars and profits of around 6.9 billion dollars. The company reported lower profits in 2019 due to slightly increased operating costs.
Why You Should Not?
1. The COVID-19 Pandemic has also hurt American Express. Weaker spending volumes on non-essential goods and services like travel have hurt the company’s revenue from the transaction fee that they get. The pandemic will continue to hurt the company’s sales until the economy is stronger.
2. American Express still faces competition from several large and growing companies. Other fintech companies like Visa, Mastercard, and Square offer products that directly compete with American Express. Companies like Apple and Google are also entering the fintech space. These companies might hurt American Express’s future growth.
3. Government Regulation might also hurt American Express. As small businesses reeling from the effects of the pandemic, businesses might ask their respective governments to force fintech companies like American Express to reduce their fees. If successful, these regulations will negatively impact American Express’s top and bottom lines.
I think that American Express is a great long-term investment due to the rise in digital payment methods sped up by the COVID-19 Pandemic. However, competition and the possibility of government regulation will hurt the company’s future growth further into the fintech industry.