After Costco announced the end of its 16-year-long partnership with American Express, many people have been turning their attention to AmEx stock and what the company is doing to stay afloat after losing such a crucial deal. What are American Express’s plans to keep the business profitable?
AmEx CEO Ken Chenault said that 2015 was a disappointing year for American Express investors, but the company plans to change that this year by spending more money on acquiring cardholders. The company said last month that marketing and promotion expenses increased 19 percent from the first quarter. In addition to seeking new members, AmEx is also looking to acquire new retail partners to replace the broken partnership with Costco, which accounted for 20 percent of the company’s loans.
Although the deal with Costco is over, the company holds a partnership with Starwood Hotels. This partnership accounts for about 4 percent of American Express’s total loans and 2 percent of its spending. However, even this deal is at risk for extinction, according to Bloomberg. Starwood Hotels is being bought out by Marriott International Inc., which already has a standing partnership with JP Morgan Chase & Co. and Visa Inc., both of which are the largest companies within their prospective markets.
American Express’s CEO said that the company is focused on doing the best it can for Marriott and Starwood customers during this transition. Chenault pointed out that Starwood does not represent a major portion of AmEx earnings, but if the company loses this deal as well it will be yet another hit to its earnings.
Chenault doesn’t seem to be concerned that the company will be able to achieve a profitable year though. He and his team have refocused their energy on vamping up the company’s lending department to yield a profit for its shareholders this year.
Warren Buffett, whose Berkshire Hathaway Inc. is AmEx’s largest shareholder, expressed that he is not worried about the company though. On Saturday at a Berkshire shareholder meeting, he expressed nothing but confidence in AmEx’s ability to pull out of the stock slump that they are in.
“I personally feel OK about American Express, and I’m happy to own it,” Buffett said. According to Buffett, American Express “has been under attack for decades — more intensively lately — and it will continue to be under attack. It’s too big a business, and too interesting a business.” The major shareholder also said that he supports AmEx’s decision to end partnership with Costco.
At the end-of-day on Monday, AmEx stock was up .38 percent, however, this has not been the norm for the company in recent months. American Express shared have slipped 5.7 percent this year, which pales in comparison to the 28 percent shares have fallen since November 2014 when Costco and AmEx announced the end of the partnership between the two companies in the United States. Only time will tell whether the company’s push to increase AmEx membership will prove to be profitable or not.
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Photo: Flickr: AIR FORCE ONE