Here’s why American Express (AXP) stock is beating Visa, Mastercard

American Express (NYSE: AXP) stock price is severely outperforming that of Visa (NYSE: V) and Mastercard (NYSE: MA) in 2024. Its total return has jumped by over 25% this year while Visa and Mastercard are up by 4.8% and 7.4%, respectively.

This outperformance goes from way back. American Express’s total return has stood at over 122% in the past five years while V and MA have jumped by 75% and 93%. 

American Express vs Visa vs Mastercard

American Express, Visa, and Mastercard are some of the biggest fintech companies in the world. Combined, they have a market cap of over $1 trillion, with Visa being the biggest one with a market cap of over $541 billion. 

Visa and Mastercard are almost similar companies in that their cards are issued by companies like banks and other fintech firms. They don’t provide their products directly to customers. 

Also, the two companies make money in a simpler way, which helps them have higher margins. Visa has gross margins of over 97% while Mastercard has almost 100%. Their net income margin stands at about 53% and 44.6%, respectively.

These margins are because of how the two companies operate. Their cards are issued by banks and the companies make money by taking a cut for all transactions that they provide. Also, they don’t have credit losses when credit card customers default on their obligations.

American Express is different because it is both a payment network and a card issuer. It issues its cards to its customers, who are often more affluent. Also, the company’s transaction costs tend to be higher than those of Visa and Mastercard. American Express is usually exposed to credit defaults.

The main reason why Visa and Mastercard stock prices have lagged that of American Express is that they have come under scrutiny by global regulators. In March, the two companies agreed to pay $30 billion to settle claims about credit card fees.

The lawsuit happened as merchants complained about the inflated swipe fees that cost Americans billions of dollars each year. As part of the settlement, the firms agreed to reduce the swipe card rates by four basis points, which will hurt their revenues and margins.

Regulators in Europe and other countries have also targeted Visa and Mastercard for their costs. In the UK, the regulator decided to cap the fees that they charge their customers.

American Express has not been targeted in these regulations because it is seen as a smaller player in the industry. Also, just a small number of people use its cards. According to Statista, the number of AMEX cards in circulation stood at over 133 million globally. 

As such, while American Express charges higher transaction costs, it is often seen as a discretionary product. Also, AXP merchants can increase their swipe fees, which MA and V have denied them for years.

American Express has also benefited from the current high-interest rate environment that has helped its annual revenue rise from $42 billion in 2021 to over $60 billion in 2023. Its net interest income jumped by 33% last year.

To be clear, these three firms are some of the best companies to own. They are high-margin firms with an impenetrable moat. Also, they are returning substantial sums of money to investors. Visa has reduced its share count from 1.89 billion in 2016 to 1.58 billion.

Mastercard has also repurchased its stock and reduced the share count from 1.07 billion in 2016 to 927 million. AXP has slashed its shares from 917 million to 719 million and this trend will likely continue.

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