AXP vs Visa Stock: Fintech companies have transformed the payments business. Cards are no longer required to transfer money between people or to make purchases, which creates new flexibility for those who can’t or don’t want to use credit.
However, American Express, Visa, and other major credit and debit card companies aren’t waving the white flag quite yet. They are adjusting their business models to changing consumer habits, and they are actively ensuring they remain relevant in the digital world.
Nonetheless, the volume and variety of alternatives to traditional cards is a threat to American Express and Visa’s control of the market. Which one is navigating the changing consumer landscape best? And in a matchup between AXP vs. Visa stock, which is most likely to deliver reliable returns for shareholders in coming years?
Is American Express Stock A Good Buy?
American Express can trace its roots back to 1850, when it was founded as an express mail service. The company began dabbling in financial products about 50 years after its launch, and 50 years after that, it issued its first charge cards.
At the time, plastic wasn’t an option, so the first American Express cards were made of paper. The American Express Gold card, a universal signal of prestige, followed in 1958, then the green card, and the platinum card. The Centurion Card was introduced just as the calendar rolled over into the 21st century.
The American Express tagline, “Don’t leave home without it,” is one of the most identifiable in the world, and the card is accepted almost everywhere – especially in the United States. In fact, 99 percent of US establishments that take Visa and Mastercard are also set up to process American Express transactions.
At the start of 2022, American Express announced that it would focus on a new growth strategy that targeted a younger clientele. Management stated that the objective was to deliver growth that exceeded pre-pandemic results. Based on the exceptional year-end earnings report, it is clear that the strategy was a success.
Roughly 12.5 million new members signed up for American Express cards – a company record – and 70 percent of those accounts were fee-based.
That’s important for American Express, as more than ten percent of the company’s net revenue comes from those membership fees. Cardholders are willing to pay up to $700 per year for American Express membership, partly for the status and partly for the rewards programs and perks that come along with the cards.
In the fourth quarter of 2022, fee-based revenue increased by 17 percent year-over-year, and total revenue went up 17 percent. Full-year revenue for 2022 came in 25 percent higher than 2021, which resulted in earnings per share of $9.85. Purchase volume increased 20.9 percent over 2021 for a total of $1.08 trillion.
Perhaps the most compelling reason to buy American Express stock is the 2023 guidance provided by leadership during the most recent earnings call. The company remains committed to its robust growth strategy, and it expects full-year revenue to increase between 15 percent and 17 percent over 2022.
That translates into earnings per share between $11.00 and $11.40. That sort of progress from a mature company is rare – and considering current share prices, American Express stock is a relative bargain. In other words, AXP stock is a buy.
What Is The Forecast For Visa Stock?
Where American Express is known as the go-to card for consumers with upper-end incomes and good credit scores, Visa is the workhorse of the credit world. The Visa logo can be found on a majority of credit and debit cards worldwide, and it is the most accepted payment brand in the world.
Visa’s extensive reach makes it an attractive partner for all sorts of businesses, and that leads to consistent increase in revenue – and ultimately in profits.
From a payment processing perspective, Visa is far and away the global industry leader. In 2022, the company processed $11.6 trillion in payments, which represents an increase of 12 percent year-over-year. That’s more than 60 percent of the global market, compared to Mastercard’s 25 percent and American Express’s 11 percent.
It’s true that Visa struggled a bit during the pandemic, primarily due to a substantial reduction in cross-border payments. From the time it went public in 2008 until the start of the pandemic, Visa’s returns were well above the larger market’s. That streak ended when COVID-19 put an end to travel and other activities.
However, it appears that in recent quarters Visa has regained its footing and rebounded to the point that analysts are projecting a steady increase in value over the next five years.
Specifically, some have suggested that Visa’s earnings per share may see average growth of as much as 15 percent per year for the next five years. If correct, that would move earnings per share from $8.41 in 2023 to approximately $14.70 in 2027.
Visa vs. AXP Stock: Which Is Best?
American Express and Visa are both Warren Buffett stocks. Through his holding company, Berkshire Hathaway, Buffett opened positions in AXP and Visa in 1963 and 2011, respectively. While he has sold off a number of his financial services stocks in recent years – including some of his Visa shares – he still expects American Express and Visa to deliver strong results.
As of the most recent Berkshire Hathaway financial statements, Berkshire Hathaway’s Visa stock made up 0.6 percent of the total portfolio and represented a 0.2 percent stake in the company. The investment in American Express is much larger, representing eight percent of Berkshire Hathaway’s portfolio and a 20 percent stake in the company.
The fact that both companies are delivering reliable profits makes it tough for those that only want one in their portfolios. When it comes to Visa vs. AXP stock, which is best? The answer may be in a careful comparison of the companies’ business models – specifically, how they make money.
Visa doesn’t get a dime from any interest paid by consumers. Instead, it receives a fee for every transaction it processes through its payment network. Its massive transaction volume and large margin is what makes the company so profitable. On the other hand, American Express has a diverse array of revenue streams. It gets transaction fees, too, but there are also annual cardholder fees and revenue from interest paid by consumers.
It appears that from Warren Buffett’s perspective, American Express is the better bet, in part because of its unique business model and wide moat. The American Express business model has proven very effective, and it isn’t subject to the same pressures as card companies that focus exclusively on transaction volume.
Furthermore, the company’s brand sets it apart from competing payment services. Holding an American Express card is widely regarded as a sign of financial success. That sense of exclusivity can’t be duplicated by other payment solutions, including Visa.
As Buffett put it in an interview with Bloomberg:
You can’t create another American Express. I could create another shoe store. I could create another business publication. I could do all kinds of things with hundreds of billions of dollars. But I can’t put in the minds of people what is in their minds about American Express.
In short, both AXP and Visa stock are smart additions to a balanced portfolio, but in a head-to-head AXP vs Visa stock matchup, American Express stock is a better buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.