American Express

AmEx benefits from multiple durable competitive advantages. It is a premium, closed-loop payments network (issuer and network combined), which captures both merchant ‘discount’ fees and cardmember fees. Its brand and service are geared to affluent customers (high usage, loyalty and switching costs).

Management notes the “long-standing advantage” of AmEx’s proprietary platforms (e.g. exclusive dining access via Resy/Tock). These factors constitute a wide moat: network effects of millions of merchants × millions of cardholders, strong brand, and differentiated rewards.

However, the network is smaller than Visa/Mastercard and faces fintech competition, so we score the moat high (80) but not perfect. Continuous innovation will be needed to fend off competitors in the premium segment.

American Express has good pricing power due to its affluent customer base and unique value proposition. Cardmembers pay high annual fees (Gold, Platinum cards) for premium perks, and merchants often pay higher fees in return for AmEx’s wealthy customers.

This has enabled strong margin expansion: for example, net interest income grew 18% in 2024 even as loan balances grew only 8%, indicating a rising spread. Card fee and subscription revenues also jumped (net card fees +16% YOY). These trends suggest AmEx could continue to raise yields.

We rate pricing power at 75/100: it is strong but not unlimited, since merchants can negotiate and regulatory scrutiny can cap fees. The recent healthy margin growth (record payout ratios, share buybacks) shows AmEx has been able to translate its prices into profits.

Revenue and cash flow are quite predictable. AmEx’s core revenues (card fees, card-transaction discounts, interest on revolving balances) recur from its large base of 100M card accounts. Spending trends remain stable: Q1 2025 saw FX-adjusted revenue +8%), and total card spending continued growing 6–7%.

Management reaffirmed 2025 revenue guidance of 8–10% growth). High-income consumer spending and global travel (AmEx’s focus) are secular tailwinds, giving visibility beyond economic downturns. The business is not highly cyclical commodity – card usage dips less than, say, airline traffic in recessions. We therefore give 85 for predictability.

The business model is simple and transparent, with no reliance on one volatile product or region. Global scale (operations in ~200 countries) further smooths out local risks.

AmEx has a very solid financial foundation. It maintains regulatory capital well above minimum requirements. As of year-end 2024, AmEx had $40.6B in cash and equivalents against $49.7B of long-term debt).

Moreover, roughly 92% of its $139.4B in customer deposits are FDIC-insured), and these deposits nearly match the $139.7B of cardmember loans outstanding. Thus the lending is largely funded by stable deposits. Debt leverage is moderate: total liabilities $241B vs equity $30B (assets $271B)). The company also passed Fed stress tests easily.

Net credit losses have been low historically (2% of balances) and provisions are conservative. Overall financial strength scores 80: the balance sheet can weather downturns, though as a credit lender it remains exposed to consumer credit cycles.

Management is shareholder-friendly and reinvests smartly. AmEx has a track record of returning excess cash: in 2024 it repurchased 23.9M shares ($5.9B) and paid $2.0B in dividends) (dividend +17% announced late 2024). This represented 76% of total capital generated, reflecting disciplined buybacks at attractive prices.

At the same time, AmEx has acquired businesses that strengthen its ecosystem – e.g., restaurant tech (Resy, Tock, Rooam) to deepen loyalty, and it recently sold non-core Accertify for a gain. Capital expenditures are moderate (technology and data centers), supporting future growth without unusual dilution.

Stock-based compensation ($504M in 2024)) is modest relative to earnings, so share count continues to shrink. We score 80: capital allocation has been excellent, balancing reinvestment (loyalty programs, partnerships in dining) with returns and dividend growth.

CEO Stephen Squeri (in office since 2018) and his team have delivered consistent execution. Squeri is a long-serving AmEx executive with deep payments experience, and he has championed disciplined growth (record customer acquisition and spending) while maintaining an attractive capital plan.

The current CFO (since 2023) replaced previous leadership without operational hiccups. The board and insiders appear aligned: Berkshire Hathaway remains a top shareholder. Compensation is reasonable; equity incentives are used sparingly (only $500M SBC expense in 2024)) and have not unduly diluted owners.

Areas of concern: AmEx is not founder- or family-led, so it lacks the owner-manager dynamic. We observe no major governance issues, though CEO did sell some stock in 2024. Overall we score 70: management is competent and shareholder-aligned, but the absence of a driving founder caps the score.