Thursday , February 27, 2020

Eye on Earnings: Wall Street Rewards AmEx But Punishes Discover After Seeing Fourth-Quarter Results

Two bellwether payments stocks headed in opposite directions Friday morning as they reported financial results for the fourth quarter. Discover Financial Services saw its share price swoon 7.41% in pre-market trading. By mid-morning, it stood at $77.94, down 9% from its Thursday close. AmEx shares on the other hand had climbed 3% to $135.65 at mid-morning Friday, nearing the company’s 52-week high.

AmEx’s stock performance reflected a positive fourth-quarter in which its revenue rose 9% year-over-year to $11.37 billion, slightly beating analysts’ consensus estimate. Of that total, $6.83 billion came from discount fees, handily beating the $6.46 billion merchants paid in the year-ago period. Still, the company’s average worldwide discount rate at year-end was 2.36%, down slightly from 2.39% in the third quarter and unchanged from a year ago.

As for merchant business in the U.S. market, AmEx took the occasion upon its earnings release Friday to trumpet its success in matching the coverage of competing card networks. “I am … pleased to report that we achieved our goal of virtual parity merchant coverage in the United States as of year-end 2019,” said Stephen Squeri, AmEx’s chairman and chief executive, in a statement Friday. “We set this ambitious goal in 2016 recognizing the integral role of our merchant network in driving our growth, and we remain committed to continuing to increase our coverage globally.”

Discover posted solid results Thursday afternoon, but higher expenses and credit costs, coupled with a drop in stock buybacks, led some analysts to lower their ratings for the company.

Photo by Rick Tap on Unsplash

Fourth-quarter revenue totaled $2.94 billion, up 4.6% year-over-year, but Wall Street was looking for $2.95 billion, according to a consensus reported by tracking service The Street. Of that latest total, the bulk came from interest income, at $2.42 billion. Among merchant-related businesses, discount revenue net of rewards costs came to $281 million, up slightly year-over-year. 

Transaction-processing revenue for the quarter was $51 million, up from $46 million. Transactions processed on Discover’s Pulse electronic-funds-transfer network came to 1.25 billion, up 7% year-over-year. Transaction volume on Discover’s proprietary network grew 10%, to 731 million.

While the company’s results were solid, they disappointed some analysts who were looking for accelerated growth. “One area we have been a bit frustrated by is the lack of much higher growth of the payments business,” said Robert Napoli, an analyst at William Blair & Co. LLC, in a commentary released Friday.

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