American Express Poised to Outperform PayPal in Recession

American Express and PayPal are two financial institutions with different business models that perform well in recessionary times. American Express is a credit card company that issues its own cards and runs its own banking accounts, while PayPal generates revenue by charging transaction fees on its checkout services and money transfers.

PayPal's business model makes it more vulnerable to economic downturns, as a slowdown in retail spending will throttle its growth and crush its margins. In contrast, American Express has a wide moat that protects its balance sheet from bad debt, and it is resistant to interest rate swings.

The two companies have different growth prospects, with analysts expecting American Express' revenue and EPS to grow at CAGRs of 9% and 14%, respectively, from 2025 to 2028. PayPal's revenue and EPS are expected to grow at CAGRs of 5% and 4%, respectively.

American Express trades at 19 times this year's earnings, while PayPal trades at 11 times its earnings. While PayPal seems cheaper, it arguably deserves that discount due to the challenges it faces in a fragmented market filled with similar fintech companies.