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    American Express Co (AXP)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$249.20Last close (Jul 18, 2024)
    Post-Earnings Price$241.80Open (Jul 19, 2024)
    Price Change
    $-7.40(-2.97%)

    What went well

    • Millennial and GenZ spending increased by 13% and now account for 33% of total billings, indicating strong growth among younger customers and positioning American Express for long-term success.
    • Net card fee revenues grew by 16% FX-adjusted and are expected to increase further, driven by product refreshes (with 40 products being refreshed, including the upcoming Gold Card) and strong customer retention, evidenced by 3.3 million new cards acquired and high retention rates.
    • Marketing investment increased to $6 billion for the year, an $800 million year-over-year increase, demonstrating confidence in growth opportunities and commitment to gaining market share in a highly competitive environment.

    What went wrong

    • American Express is experiencing a softer spending environment, with U.S. consumer spending growth slowing from 8% to 6% , and large corporate spend growth dropping to 0% from 5% last quarter. The company anticipates this softer environment to continue, which may negatively impact revenue growth.
    • The company is significantly increasing its marketing spend to $6 billion for the year, an $800 million increase over last year. This increased spending may weigh on profitability and suggests increased competition for customers.
    • American Express expects to build additional credit reserves (CECL reserves) in the second half of the year, which will put pressure on EPS. Additionally, operating expenses are expected to increase due to investments in technology and control management capabilities, which may further impact profitability.

    Q&A Summary

    1. Revenue Guidance
      Q: Is the 9%-11% revenue growth guidance still on track?
      A: Yes, we are comfortable with our 9%-11% revenue growth guidance for 2024. Quarter-to-date growth is about 10%, both reported and FX adjusted. Depending on organic growth, we expect to wind up within that range.

    2. Credit Quality Outlook
      Q: How are write-offs and reserves expected to trend?
      A: We now expect credit write-offs to remain stable at around 2.1% for the rest of the year. Delinquency rates may tick up, driving incremental reserves, but overall reserve rate should stay around 2.8% to 2.9%.

    3. Marketing Spend Increase
      Q: Why are you increasing marketing spend, and how is it funded?
      A: We are increasing marketing spend to a record $6 billion for the year, an $800 million year-over-year increase. This is funded organically by stronger core earnings, not the one-time Accertify gain. We see opportunities to acquire more cardholders without compromising on credit.

    4. EPS Growth and One-Time Gain
      Q: Will you achieve mid-teens EPS growth despite the Accertify gain?
      A: Yes, we expect to deliver mid-teens EPS growth off the adjusted 2024 EPS, excluding the one-time Accertify gain. By funding increased marketing from core earnings, we can sustain higher marketing levels and drive future growth.

    5. Net Interest Income Outlook
      Q: How will net interest income growth trend relative to loans?
      A: We expect loan growth to moderate but remain in double digits. Net interest income growth will also moderate due to funding mix shifts towards high-yield savings accounts and changes in yield.

    6. Spending Trends and Billings
      Q: Are you planning for a continued softer spending environment?
      A: We see stability in spending levels and have assumed current trends in our revenue guidance. Discount revenue growth is expected to remain at current quarter levels.

    7. Card Fee Growth and Product Refreshes
      Q: How are product refreshes impacting card fee growth?
      A: Net card fee growth is at 16% FX adjusted and is expected to tick up in the second half of the year. This is driven by product refreshes and strong cardmember renewals. We are halfway through refreshing 40 products, with the Gold Card refresh coming soon.

    8. Competitive Environment
      Q: Are competitors pulling back, affecting your marketing strategy?
      A: No, the competitive environment is as intense as ever. We are increasing marketing spend because we see opportunities, not due to competitors pulling back.

    9. Digital Banking Investments
      Q: What are your goals with digital banking investments?
      A: We aim to enhance engagement with consumers and small businesses. We are investing in capabilities and encouraging customers to use our multiple accounts. This is a journey, and there's more to come.

    10. Large and Global Spend Deceleration
      Q: Why did large and global spend decelerate this quarter?
      A: Large and global spend growth decreased from 5% last quarter to 0% this quarter due to a significant drop in usage by one specific client. There is no broader trend or inflection point in corporate card spend.

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