Q4 2023 Earnings Summary
- American Express expects revenue growth between 9% and 11% in 2024, driven by continued strength in card fees, resilient billing growth, and higher spending from tenured card members.
- Best-in-class credit metrics with write-off rates lower than pre-pandemic levels support earnings, as 70% of loan growth comes from tenured card members, indicating disciplined risk management and strong credit quality.
- Strong partnerships, such as with Delta Airlines (billing growth on Delta products up 15% for the full year), and continued acquisition of premium card members, especially millennials and Gen Z, position American Express for future growth.
- American Express anticipates a moderation in net interest income (NII) growth due to slower loan and asset growth, which could suppress revenue growth in 2024.
- The company expects an increase in delinquency and write-off rates in 2024 as credit normalization continues, potentially impacting profitability. ,
- Organic spending among existing small business customers is flat, indicating potential headwinds in the small business segment, with billings growth relying more heavily on new card acquisitions. ,
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Revenue Growth Drivers
Q: What are the drivers of revenue growth, including discount revenues, card fees, and NII outlook?
A: The building blocks of our revenue growth remain the same. We expect billing and discount revenue to grow at a similar pace to recent quarters. In Q4, card fees grew by 17%, and 20% for the full year. We anticipate card fees will continue to be a key contributor to growth, supported by strong premium acquisitions, product refreshes, renewals, and very strong retention rates. Net Interest Income (NII) growth is expected to moderate due to the moderation in asset and lending growth rates over past quarters, as we return to more normal levels post-COVID. We believe interest rate dynamics from the Fed won't significantly impact NII. Overall, running multiple scenarios, we land in the revenue guidance range of 9% to 11% growth. -
Loan Growth and Credit Quality
Q: Where is loan growth coming from, and are there differences in credit performance between new and tenured customers?
A: About 70% of our loan growth comes from tenured card members who've been with us for more than 12 months. We focus on nurturing relationships with existing card members, offering cross-sell products, increasing credit lines, and understanding their spending patterns better. We don't engage much in balance transfers or promotional offers. Regarding credit profiles of new card members, we haven't changed our underwriting models or marketing channels; we continue to attract customers with positive credit profiles. -
Reserve Rate Increase and Credit Normalization
Q: Why is the reserve rate expected to increase or drift up in 2024?
A: The write-off rate in Q4 was 2%, below the pre-pandemic level of 2.2%, indicating historically low delinquency and write-off rates. The slight uptick is due to normalization from unsustainably low sub-1% write-off rates during the pandemic. The biggest contributors to loan balances are the pay-over-time facility on charge products and co-brand cards, both with very strong credit profiles. The portfolio mix is shifting towards products with strong credit profiles, causing a slight increase in reserve rates as normalization occurs, but we feel comfortable with this trend. -
Customer Engagement Spending
Q: Can you maintain customer engagement with elevated investment spending while offsetting margin pressure elsewhere?
A: The "premiumization" of our portfolio is the key driver behind the ratio of variable customer engagement expenses to revenue. As we acquire more Platinum card members, variable customer engagement expenses increase. We have initiatives to optimize this, such as the "pay with points" option, which enhances customer experience and drives efficiencies in the weighted average cost per point. In Q4, we saw less point redemption with airline tickets and fewer point accelerators earned due to softness in some T&E categories, creating natural hedges in our business model. We're committed to containing operating expenses, expecting 2024 operating expenses to be about flat compared to 2023. -
Billings Growth and Card Acquisition
Q: How much of billings growth is from new card members versus winning wallet share, and what's the outlook for card acquisitions?
A: A significant portion of our growth is coming from new card acquisitions. We've consistently been acquiring around 2.9 to 3.1 million cards per quarter, excluding an anomaly in Q1 last year. As long as we can attract high credit quality premium card members, we'll continue aggressive acquisition efforts. While we don't provide specific guidance on acquisition numbers, this range is a fair assumption based on our planned spending. In a stronger economy, we expect more organic growth from existing cardholders. Our millennial and Gen Z customers now account for 32% of total spending in Q4, and we have confidence in their long-term value. As the economy improves, we anticipate an organic step-up in spending, supporting our confidence in future growth and our aspiration for 10% plus revenue growth. -
Softness in T&E and Airline Spend
Q: What are you seeing regarding softness in T&E trends, particularly airline spend, and what's your outlook?
A: While T&E growth rate sequentially came down, it is still up 9% year-over-year, indicating strong performance. There has been some softness in airline spending due to decreased demand, as noted by airlines themselves. Since many customers use our cards for airline tickets, we've observed a similar trend. However, bookings remain very strong in our Travel and Lifestyle Services segment. Our partnership with Delta is performing well, with strong new card originations. We'll monitor if this softness is a trend or a data point, but overall, we're not worried as our card members love traveling. -
Pay Over Time Facility Growth
Q: Can you discuss the characteristics, yield, and growth of your pay-over-time business?
A: The pay-over-time facility is attached to our charge products, allowing card members to revolve a portion of their bill. It is the fastest-growing category in terms of loan growth and has been very well received by card members. Since charge cards have no preset spending limit, this facility offers premium Gold Card members flexibility to revolve balances over time. The credit profile of users is very strong, as it caters to our premium customer base. -
Delta Partnership and Small Business Spending
Q: With airline spend slowing, does the benefit from the Delta partnership diminish, and what's happening with small business spending?
A: The Delta co-brand product remains very strong, with total billing growth up 15% for the full year. We're continuing to originate a significant number of new cards, and the partnership is thriving. While there was some softness in Q4, it's unclear if this is a trend or a temporary blip. Regarding small businesses, the main driver is organic spend, and we're not seeing existing small businesses spend more than the previous year, which is an industry-wide phenomenon. Card acquisition within small businesses remains strong, and credit quality is solid. We believe the issue is organic spending, not specific to American Express, and we're confident in our ongoing engagement with small businesses. -
Total vs. Proprietary Card Growth
Q: Why might total card growth diverge from proprietary card growth, and what's your strategy regarding proprietary cards?
A: We have about 140 million cards that can transact on our network, with approximately 80 million issued by American Express as proprietary cards. These proprietary cards account for the bulk of spending and drive the majority of our economics. Proprietary cards in force grew by 5% year-over-year, while total cards in force, including those issued by network partners, increased by 6%. The slight divergence is due to growth in cards issued by network partners, but our focus remains on growing our proprietary card base. -
Platinum Card Refresh Plans
Q: Are there plans to refresh the U.S. Platinum card this year, and is that included in your guidance?
A: We've committed to refreshing 40 products this year as part of our strategy to keep products fresh and aligned with customer needs and trends. We generally refresh products every 3 to 4 years. Regarding the specific plans for the Platinum card, we don't preannounce such updates, so you'll have to wait and see.