AmEx Embraces Social Networking with Foursquare Partnership

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American Express ( AXP ) is expanding its partnership with foursquare across the country after a successful pilot program . The new partnership will allow users to link an American Express card with their Foursquare account allowing users to take advantage of special offers by paying with their AmEx cards. While we don't expect it to impact the shares immediately, it provides an attractive platform that reaches young buyers that use Foursquare and so could increase card membership or attract users away from competitors like Visa (NYSE:V) and MasterCard (NYSE:MA) that are more widely available. It also takes advantage of social buying similar to Groupon or LivingSocial by promoting local deals.

We value American Express with a $49.60 Trefis price estimate of its stock , slightly below its current market price. Here we take a closer look at American Express's partnership with foursquare.

How it works

With a user base larger than 10 million, foursquare is a mobile platform that lets users share their location with friends as well as share views and suggestions about venues nearby. Businesses can leverage the foursquare platform to attract, engage and retain consumers depending on their preferences and location.

The partnership links foursquare profiles with American Express cards, thereby enabling cardmembers to seamlessly redeem deals & discounts offered exclusively to American Express cardmembers by merchants without the need for coupons, special codes or even a show of their mobile devices. Cardmembers make payments at retail price on making the purchase or using the service, and the discount is credited back to their American Express card account in 3-5 days.

Mutually beneficial partnership

Partnering with an established global financial services firm such as American Express boosts foursquare's credibility and reach. It also enables foursquare to provide its users tangible 'real-world' rewards in the form of discounts - rather than virtual badges it is best known for. By offering more specials with retailers, Foursquare will likely gain more users looking for deals and increase the engagement of existing users.

Similarly, American Express gets exposure to the current popularity of daily deals ushered in by sites like Groupon and LivingSocial. This partnership leverages social networking and consumer spending habits so that American Express can target a younger demographic for new cardmembers. This will increase the number of cardmembers, which we expect to also get a boost from the introduction of prepaid cards.

 

Expect Muted Impact for Now

Foursquare's user base hit 10 million within 2 years growing at a staggering 1000% pace. We expect that at its current pace, Foursquare could well reach over 100 million users by 2017.

In a scenario where 1% of Foursquare members are drawn to American Express cards, this could lead to an additional 50,000 American Express-issued cards in the U.S. in the second half of 2011 - growing to almost 1 million additional cards by 2017. Since more cards-in-use translates into higher transaction volumes, this would mean higher transaction fee revenues for American Express.

You can drag the graph above to see the impact on American Express stock price estimate.

View our detailed analysis for American Express here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AXP , COF

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