Citigroup (NYSE: C) is a fascinating company because it combines a monster bank, an insurance company, and a credit card company.
On paper, Citigroup has a lot of value. For example, Citigroup claims to support 142 million credit-card accounts. Impressively, Citi claims those cards generated $534 billion in annual purchase sales and $160 billion in receivables in 2018.
Specifically Citigroup claims it had 55 million branded card accounts in 2018. Citi’s estimates its branded cards annual purchase sales of $448 billion and an average loan portfolio of $112 billion in 2018.
In addition, Citigroup claims it supported 86 million private-label and co-branded credit cards in 2018. Iconic brands that issue Citi Cards include; L.L. Bean, Caterpillar (NYSE: CAT), Shell, Best Buy (NYSE: BBB), ExxonMobil (NYSE: XOM), Macy’s (NYSE: M), and the Home Depot (NYSE: HD).
Citigroup’s Business Model
Consequently, Citi is a major player in credit cards and banking. Citigroup’s Global Consumer Bank claims to operate 2,140 branches.
Tellingly, other major banks are imitating Citigroup’s business model. For instance, Business Insider claims Goldman Sachs (NYSE: GS) spent $300 million developing its Apple-branded credit card.
Furthermore, Goldman Sachs is making a big push into consumer banking with its Marcus and Clarity Money artificial intelligence platforms. Currently, Marcus is offering high-yield online savings accounts and no-fee personal loans.
Goldman Sachs justifies Citigroup’s business model by adopting it. Thus, we need to ask how much money is Citigroup making?
How Much Money is Citigroup Making?
Citigroup (NYSE: C) reported quarterly revenues of $18.6 billion and a net income of $4.9 billion for 3rd Quarter 2019.
Impressively, Macrotrends credits Citigroup with a 3rd Quarter 2019 gross profit of $18.6 billion. I like banks, such as Citi, because at a bank the revenue is the gross profit. Hence, any money a bank makes is gross profit. Macrotrends estimates Citi’s gross profit grew by 1.01% between 3rd Quarter 2018 and 3rd Quarter 2019.
However, Citigroup reported a negative free cash flow of -$39.646 billion on 30 September 2019. Macrotrends estimates Citigroup’s free cash flow fell by 383.98% between 2017 and 2018.
Citigroup is a cash-rich company
Goldman Sachs is imitating Citigroup (NYSE: C) because Citigroup is a cash-rich company.
Impressively, Macrotrends estimates Citigroup had $788.392 billion in cash on hand on 30 September 2019. Citi’s cash on hand grew by 6.87% between September 2018 and September 2019.
Citigroup has a lot of cash because of the nature of its business. Citigroup’s customers have to make credit-card payments each month to keep their credit.
Hence, Citigroup’s credit cards generate vast amounts of float. Float is a stream of cash, customers generate by making regular payments. The creator of the term float, Warren Buffett, used float to build his Berkshire Hathaway (NYSE: BRK.B) empire.
Goldman Sachs is spending big money to develop an Apple credit card and Marcus because it wants float. Citigroup already has that float.
Tech is the Biggest Opportunity at Citigroup
Strangely, I consider tech companies such; as Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL), the greatest threats to Citigroup.
Alphabet (NASDAQ: GOOG); for example, is exploring the possibility of offering credit card access through Google. Interestingly, Citigroup is working on the Google checking account project they call Cache, Forbes claims.
I think Alphabet could offer access to a Citigroup checking account through Google Pay. Thus, Alphabet and Google Pay could become new profit centers for Citigroup.
Smartphones are the Future of Banking
I guess, Citigroup is trying to counter Goldman Sachs’ Apple alliance by working with the most powerful tech company; Alphabet. In particular, Citigroup wants access to the 2.5 billion mobile devices that run on Alphabet’s Android platform.
Android is the world’s most popular and successful smartphone operating system. One reason Citigroup wants access to Android is to enter new markets in developing nations.
For example, Citigroup could reach new customers in countries and regions where there are no brick and mortar banks. People in those areas have money but no bank access.
However, many of those people own smartphones. Statista estimates there will be 3.8 billion smarpthones in the world in 2021. Smartphone connectivity is growing fast, Statista estimates there were only 2.5 billion smartphones in the world in 2016.
Smartphones are the future of banking and Citigroup wants a piece of that future. To get that piece, Citigroup is working with the dominant brand in smartphones: Alphabet’s Android.
I think Google Pay and Android could help Citigroup’s digital banking services reach a global market. Thus, Alphabet could help Citigroup make more money.
Is Citigroup a Value Investment?
I think Citigroup (NYSE: C) is a value investment. In fact, I believe Mr. Market undervalued Citigroup at $79.67 on 27 December 2019.
Citigroup is a value investment because it offers a good dividend. Citigroup paid a dividend of 51₵ on 1 November 2019. Moreover, Citigroup’s dividend grew from 45₵ in May 2019 to 51₵ in August 2019.
Overall, each Citigroup share offered a dividend yield of 2.62%, an annualized payout of $2.04, and a payout ratio of 26.35% on 27 December 2019. Plus, Citigroup’s dividend has been growing for four years, Dividend.com estimates.
In the final analysis, Citigroup is a value investment because Mr. Market undervalues it. Additionally, Citigroup is a good income stock because of its dividend. Investors who want steady income need to investigate Citigroup.