Q3 2024 Earnings Summary
- 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 .
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue Growth (YoY) | Q3 2024 | 9% to 11% YoY for FY 2024 | 16,636 vs 15,381 → ~8.16% growth | Missed |
Interest Income Growth (YoY) | Q3 2024 | Double-digit YoY growth by year-end | 686 vs 579 → ~18.5% growth | Met |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.