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    American Express Co (AXP)

    Business Description

    American Express (AXP) is a globally integrated payments company that provides a wide range of financial products and services, including credit and charge cards, banking, and other payment and financing products . The company also offers merchant acquisition and processing services, network services, travel and lifestyle services, and expense management products . American Express operates through four primary reportable operating segments, focusing on premium consumer and small business segments as key growth areas due to their higher spending and better credit performance .

    1. U.S. Consumer Services (USCS) - Offers credit and charge cards, banking, and payment products to U.S. consumers, focusing on premium services and benefits.
    2. Commercial Services (CS) - Provides payment and financing products, expense management solutions, and other services to small and large businesses.
    3. International Card Services (ICS) - Delivers credit and charge card products and services to consumers and businesses outside the U.S.
    4. Global Merchant and Network Services (GMNS) - Facilitates transactions between card members and merchants, offering merchant acquisition, processing, and network services.

    Q3 2024 Summary

    Initial Price$232.33July 1, 2024
    Final Price$268.60October 1, 2024
    Price Change$36.27
    % Change+15.61%

    What went well

    • Strong Card Fee Growth Driving Revenue: American Express has achieved 25 consecutive quarters of double-digit growth in card fees, with an 18% increase this quarter . This consistent growth contributes significantly to revenue and is fueled by successful product refreshes that enhance value propositions and drive higher adoption and engagement among customers .
    • Robust New Customer Acquisition Among Premium Segments: The company continues to acquire a substantial number of new cardholders, adding over 3 million cards each quarter . Significant growth is seen particularly among Millennials and Gen-Z customers, who are more engaged and transact more frequently, laying a strong foundation for future growth .
    • Ability to Sustain Mid-Teens EPS Growth Despite Modest Billing Increases: Even with billing growth of around 6% for the past year, American Express is delivering on its mid-teens EPS growth targets . This demonstrates the strength and resilience of their business model, with disciplined expense management and continued investments generating solid earnings .

    What went wrong

    • The decline in organic spending, particularly among tenured Card Members and small businesses, is impacting overall spend per customer, potentially signaling a slowdown in engagement and future revenue growth.
    • The company acknowledges that current organic spend levels are insufficient to meet its long-term revenue aspirations, indicating potential challenges in achieving future growth targets without a rebound in customer spending.
    • Despite strong earnings, the company is not significantly increasing investments in marketing and technology due to capacity limitations, which may limit future growth opportunities and suggests diminishing marginal returns on additional investments.

    Q&A Summary

    1. Revenue Growth Aspiration
      Q: Can 10% revenue growth be achieved in current environment?
      A: Management stated that to reach their 10% revenue growth aspiration, they would need an acceleration in billings from the current 6% growth level. They acknowledged that this goal was set in a more robust environment, and achieving it now would require increased billing growth.

    2. Sustaining Mid-Teens EPS Growth
      Q: Can mid-teens EPS growth continue with slower billings?
      A: Despite billings growth at 6%, management believes they can continue to deliver mid-teens EPS growth. They highlighted ongoing card acquisitions, with 3.3 million new cards acquired in the third quarter, mainly among Millennials and Gen-Zs, which will drive future growth. Even after increasing marketing investments by $800 million, they are growing EPS north of mid-teens.

    3. Investment Levels and Earnings
      Q: Why not pull forward investments with strong earnings?
      A: Management is ramping up investments, including an additional $800 million in marketing and increased technology spend. They prefer to layer investments over time rather than accelerating abruptly. They plan to grow investment levels further in 2025, focusing on marketing and technology.

    4. Health of Affluent Consumer
      Q: Any concerns about affluent consumer spending sustainability?
      A: Management feels confident about the consumer, noting U.S. spending has been stable at around 6% growth. The international consumer business is growing at 13% over the last four quarters. They see no signs of declining spending or worsening credit metrics, with write-offs decreasing sequentially.

    5. Spend Per Member and Customer Growth
      Q: Can you maintain spend growth if spend per member is flat?
      A: While organic spend per member is less robust, they have a clear path to acquiring more cardholders. New Card Members are more engaged, with 30% more transactions per new member compared to five years ago. They completed over 40 product refreshes this year, enhancing customer engagement.

    6. Net Interest Income Outlook
      Q: How will NII evolve heading into 2025?
      A: The company is slightly liability sensitive, with minimal impact from Fed rate cuts on NII. Revolving balances are expected to moderate in growth as normalization is mostly behind them. They're shifting funding towards high-yield savings accounts, lowering funding costs and supporting yields.

    7. Revenue Growth Guidance
      Q: Is revenue growth reacceleration expected in Q4?
      A: Management expects stability, with Q4 trends continuing from Q3, guiding towards 9% revenue growth for the year. Despite revenue growth at 9%, EPS performance is well above initial guidance.

    8. Business Development Spend
      Q: Why did business development spend come in lower?
      A: The lower spend is due to reduced incentives paid back to customers, as billing on the corporate side is at a lower level. Expenses related to agreements with customers and co-brand partners decreased because of this reduced billing.

    9. Card Fee Revenue Growth
      Q: Are product refreshes exceeding expectations in adoption?
      A: Adoption and engagement are meeting expectations. Product refreshes create more market demand and enhance marketing effectiveness. Card fee revenue has grown to over $2 billion this quarter, driven by fee-paying members who are highly engaged.

    10. Customer Lifetime Value
      Q: How does spend vary across card categories?
      A: As customers upgrade from Green to Gold to Platinum cards, their spending increases. Platinum Card Members engage more with travel benefits, leading to higher spending. Customers moving up have a higher lifetime value, especially if they enter the franchise earlier.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    U.S. Consumer Services----28,116---
    Global Consumer Services Group (GCSG)--------
    - Total Non-Interest Revenues(31)-(44)--106-209-28
    - Interest Income454-579-2,186689679686
    Commercial Services----14,776---
    International Card Services----10,430---
    Global Merchant and Network Services----7,396---
    Global Commercial Services (GCS)--------
    Global Merchant and Network Services (GMNS)--------
    Corporate & Other-----203---
    U.S. Card Services (USCS)--------
    International Card Services (ICS)--------
    Total Revenue14,28115,05415,38115,79960,51515,80116,33316,636
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States----47,140---
    EMEA----5,633---
    APAC----4,372---
    JAPA--------
    LACC----3,571---
    Other Unallocated-----201---
    Total Revenue----60,515---
    KPIs - Metric / PeriodFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    **Net write-off rate — principal, interest and fees (%)**1.7%2.0%2.0%2.2%-2.3%2.4%2.2%
    **Net write-off rate — principal only — consumer and small business (%)**1.6%1.8%1.8%2.1%-2.1%2.1%1.9%
    **Billed business (billions)**$345.5$426.6$366.2$379.8-$367.0$388.2$387.3
    **Proprietary cards-in-force (millions)**78.079.379.680.2-81.182.182.9
    **Proprietary basic cards-in-force (millions)**29.761.061.261.7-62.363.163.7
    **Average proprietary basic Card Member spending (dollars)**$5,792$6,075$6,000$6,179-$5,919$6,192$6,110
    **Net interest yield on average Card Member loans (%)**11.3%11.2%11.7%11.7%-12.0%11.7%12.0%
    **Network volumes (billions)**$398.9$426.6$420.2$434.4-$419.2$440.6$441.0
    **Processed volumes (billions)**-$58.5$54.0$54.6-$52.2$52.4$53.7
    **Proprietary new cards acquired (millions)**3.43.02.92.9-3.43.33.3

    Executive Team

    NamePositionStart DateShort Bio
    Stephen J. SqueriChairman and Chief Executive Officer2018Stephen J. Squeri has been the Chairman and CEO since 2018. He joined American Express in 1985 and has held various senior roles, including Vice Chairman and Group President of Global Corporate Services .
    Christophe Y. Le CaillecChief Financial OfficerAugust 2023Christophe Y. Le Caillec has been the CFO since August 2023. He oversees the company's financial operations and has held various global business roles since joining American Express in 1997 .
    Douglas E. BuckminsterVice ChairmanApril 2021Douglas E. Buckminster has been Vice Chairman since April 2021. He previously served as Group President of Global Consumer Services Group and has held various leadership positions within the company .
    Howard GrosfieldPresident, U.S. Consumer ServicesMay 2022Howard Grosfield has been President of U.S. Consumer Services since May 2022. He previously served as Executive Vice President and General Manager of U.S. Consumer Marketing and Global Premium Services .
    Monique HerenaChief Colleague Experience OfficerApril 2019Monique Herena has been the Chief Colleague Experience Officer since April 2019. Before joining American Express, she was the Chief Human Resources Officer at BNY Mellon .
    Raymond JoabarGroup President, Global Merchant and Network ServicesApril 2021Raymond Joabar has been Group President, Global Merchant and Network Services since April 2021. He previously served as President of Global Risk and Compliance and Chief Risk Officer .
    Rafael MarquezPresident, International Card ServicesMay 2022Rafael Marquez has been President, International Card Services since May 2022. He previously served as President of International Consumer Services and Global Loyalty Coalition .
    Anna MarrsGroup President, Commercial Services and Credit & Fraud RiskApril 2021Anna Marrs has been Group President, Commercial Services and Credit & Fraud Risk since April 2021. She joined American Express in 2018 as President, Commercial Services .
    Glenda McNealChief Partner OfficerFebruary 2024Glenda McNeal has been Chief Partner Officer since February 2024. She was previously President of Enterprise Strategic Partnerships .
    David NigroChief Risk OfficerApril 2021David Nigro has been Chief Risk Officer since April 2021. He previously served as Executive Vice President and Chief Credit Officer, Global Consumer Services and Credit and Fraud Risk Capability .
    Denise PickettPresident, Global Services GroupSeptember 2019Denise Pickett has been President, Global Services Group since September 2019. She was previously Chief Risk Officer and President, Global Risk, Banking & Compliance .
    Ravi RadhakrishnanChief Information OfficerJanuary 2022Ravi Radhakrishnan has been the CIO since January 2022. Before joining American Express, he held senior technology roles at Wells Fargo and Citigroup .
    Elizabeth RutledgeChief Marketing OfficerFebruary 2018Elizabeth Rutledge has been Chief Marketing Officer since February 2018. She previously served as Executive Vice President, Global Advertising & Media .
    Laureen E. SeegerChief Legal OfficerJuly 2014Laureen E. Seeger has been Chief Legal Officer since July 2014. She oversees the Legal, Government Affairs, Global Security, and Corporate Secretarial functions .
    Jennifer SkylerChief Corporate Affairs OfficerOctober 2019Jennifer Skyler has been Chief Corporate Affairs Officer since October 2019. Prior to joining American Express, she was the Chief Communications Officer at WeWork .
    Anré WilliamsGroup President, Enterprise ServicesApril 2021Anré Williams is Group President of Enterprise Services and CEO of American Express National Bank since April 2021. He leads the company's largest shared services organizations globally .

    Questions to Ask Management

    1. Given that billing growth has remained at around 6% for the past year, what specific strategies are you implementing to achieve your aspirational goal of 10% revenue growth, especially in a softer spending backdrop?

    2. If billing growth does not accelerate, how sustainable is your mid-teens EPS growth target, and what other drivers can you leverage to maintain this growth in a challenging economic environment?

    3. Can you provide more details on the lifetime value and spending behaviors of customers as they move from Green to Gold to Platinum Cards, and how this progression impacts your overall revenue growth strategy?

    4. With your recent investments in dining platforms like Resy, Tock, and Rooam, how do you anticipate these acquisitions will contribute to restaurant spending growth, and should we expect an acceleration in this category despite the slight deceleration observed this quarter?

    5. Given that you expect modest upward bias in delinquency and write-off rates as you grow lending through your premium customer base, how are you adjusting your risk management strategies to maintain strong credit performance and profitability?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateMarch 8, 2023
    End Date/DurationN/A
    Total additional amount120 million shares
    Remaining authorization amount78,658,960 shares
    DetailsReturn capital to shareholders, reduce outstanding shares, offset new share issuance for employee compensation

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Expect full-year revenue growth of around 9% .
      2. Earnings Per Share (EPS): Raised full-year EPS guidance to between $13.75 and $14.05, reflecting 23% to 25% year-over-year growth .
      3. Marketing Spend: Expect full-year marketing spend for 2024 to be around $6 billion .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Earnings Per Share (EPS): Raised full-year EPS guidance to a range of $13.30 to $13.80, including the $0.66 EPS impact from the sale of Accertify .
      2. Revenue Growth: Expect revenue growth in line with the initial range of 9% to 11% .
      3. Marketing Spend: Anticipate full-year marketing spend to be around $6 billion .
      4. Credit and Provision: Expect write-off rates to remain generally stable for the remainder of 2024 .
      5. Net Interest Income (NII): Expect growth rate of net interest income to moderate but remain in double digits .
      6. Operating Expenses: Excluding the Accertify gain, expect operating expenses to be fairly flat compared to 2023 .
      7. Capital Management: Plan to continue returning excess capital to shareholders with no material near-term changes expected .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Reaffirmed guidance for full-year 2024 revenue growth of 9% to 11% .
      2. Earnings Per Share (EPS): Set full-year 2024 EPS guidance between $12.65 and $13.15 .
      3. Impact of Accertify Sale: Guidance does not include the potential impact from the sale of Accertify, expected to close in Q2 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Expect annual revenue growth between 9% and 11% .
      2. Earnings Per Share (EPS): Anticipate full-year EPS to be between $12.65 and $13.15 .
      3. Dividend Increase: Plan to increase quarterly dividend to $0.70 per share, up from $0.60 .
      4. Reserve Rate: Expect reserve rate to increase modestly through 2024 .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • China UnionPay, Visa, Mastercard, JCB, Discover, Diners Club International - Compete in the global payments industry with American Express's global card network .
    • Alipay, PayPal, Venmo - Web- and mobile-based payment platforms that carry out activities similar to those performed by American Express's GMNS business .
    • Delta, Marriott, Hilton, British Airways - Partners for cobranded cards and benefits/rewards programs .