Monster Banking and Credit Cards Pay off at Citigroup

There is one thing we can learn from Citigroup’s (NYSE: C) earnings report; monster banking and credit-cards can pay off big time.

Citi reported a net income of $15.67 billion on September 30, 2017. That income grew by $1 billion in just a year; it was $14.67 billion in September 2016. The income was just the tip of a mountain of cash at Citigroup.

The bank managed to accumulate $186.11 billion in cash and short-term investments on September 30, 2017. That figure was $31.88 billion higher than the $155.99 billion, Citi had in the bank just a year earlier.

Citigroup is a Definite Value Investment

It’s also easy to see where that cash is coming from, Citibank reported $49.42 billion in cash from financing and $11.35 billion in cash from operations on June 30, 2017. These numbers indicate that Citigroup is not a bank; instead, it’s a money-making machine.

It is also a decidedly-undervalued company with $1.889 trillion in assets on 30 September 2017, a market capitalization of $194.65 billion, and an enterprise value of $301.24 billion on October 24, 2017. That made Citigroup a definite value investment at the $73.62 share price reached on 25 October 2017.

Adding to the value is the 32¢ dividend scheduled for 3 November 2017. That dividend nearly doubled over the course of 2017, back on April 27, 2017, Citigroup investors received a 16¢ dividend. This makes Citi a definite stock for dividend investors to buy.

Those investors might also like the 7.49% return on equity from 30 September 2017. That’s a little low these days but it’s still good.

Is Citigroup Revenue Shrinking or Growing

There is a definite dark side to Citigroup’s financials, its’ revenues. They have been shrinking dramatically for some time.

Back in September 2015, Citi reported $75.80 billion in revenues; that fell to $71.32 billion in September 2016, and $69.88 billion in December 2016. The revenues started growing again to $71.21 billion in September 2017.

This certainly calls some of Citi’s strategic decisions such as taking over the Costco Wholesale (NASDAQ: COST) card business from American Express (NYSE: AXP) into question. Investment in new technology and concentration on the traditional credit and debit-card markets might have been a smarter move.

A better move for Citigroup might have been to link a credit or debit card to PayPal’s (NASDAQ: PYPL) fast-growing Venmo peer to peer (P2P) solution. Another might have been to offer an Amazon Prime card of some sort.

Was Costco a Smart Move for Citibank?

Although Costco is growing fast, its revenues hit $129.02 billion on August 31, 2017. Those revenues grew by $7.84 billion in the first three quarters of 2017. Costco reported $121.19 billion in revenues in February and $123.28 billion in May.

The problem with that for Citibank; is that it might not be capturing a large percentage of those revenues. A danger for Citibank is that most of the customers at Costco might be paying with debit cards rather than credit. Costco encourages this by only accepting one credit-card (a Citibank Visa) but every debit card under the sun.

Tapping the mass market by adding a wider variety of branded Visa or MasterCard products might generate more revenues for Citibank. So might increasing customer service and improving traditional cards.

Better Visas Needed at Citigroup

An intriguing possibility might be for Citibank to offer an Apple Pay, Venmo, Tez, Alipay, Walmart Pay, Facebook, PayPal, or Android Pay credit card. Since PayPal is experimenting with a Venmo Visa that makes a lot of sense. Such a card would allow a customer to pay with either their digital wallet balance or with a Visa or MasterCard line of credit. The customer would also get the ability to access his or her line of credit via the payment app.

This would be a great way to get younger Millennial (under 35) and Generation X (under 51) customers to increase credit card use. Other branded products to consider would be Lyft, Uber, Netflix (NASDAQ: NFLX), Aldi, Jet.com, and Airbnb Visa or MasterCard issues. An untapped market is gig-economy workers such as Airbnb hosts and Uber drivers who need credit but can have a hard time getting traditional bank loans.

Credit cards that offer reward points towards Airbnb rentals, Uber and Lyft rides, Netflix videos, or meals from GrubHub (NYSE: GRUB) would also be popular. Cards that combine popular digital services such as Netflix and Uber with growing retailers such as Aldi or Trader Joe’s would be a huge hit.

A major coup would be for Citigroup to issue the Amazon Prime MasterCard or the Amazon Wholefoods Visa. Since Amazon is considering a rewards program at Whole Foods, adding it to a credit card seems logical.

One thing is certain, Citigroup is still a great value investment. Those who add it to their portfolios will not be disappointed.