American Express (AmEx) announced impressive Q3 earnings, reporting earnings per share (EPS) of $3.49, surpassing the anticipated $3.27 based on forecasts from Zacks Investment Research. This performance indicates significant growth in their credit card sector. However, the company’s revenue of $16.64 billion, in line with Wall Street predictions, fell short of some expectations, prompting questions about possible market saturation.
Despite this, American Express Q3 earnings results still reflect ongoing positive developments in the payments industry. Additionally, following this strong quarter, American Express has increased its EPS forecast for the entire year.
Key Takeaways
- Strong Q3 Earnings Exceed Expectations: American Express reported Q3 earnings per share of $3.49, surpassing forecasts by 6.7%, driven by increased consumer spending, particularly in travel and leisure. The company raised its full-year EPS guidance, reflecting expected growth despite economic pressures.
- Rising Card Member Engagement and Revenue: AmEx saw a 6% increase in card member spending and an 18% rise in card fees, fueled by a high-spending customer base and loyalty programs. New premium card members and high retention rates have increased AmEx’s revenue.
- Strategic Investments in Rewards and Consumer Segments: AmEx has refreshed 40 products this year, focusing on rewards and benefits that attract Millennials and Gen-Z consumers. This strategy has led to an 80% growth in new U.S. Consumer Gold Card sign-ups.
- Effective Risk and Cost Management Amidst Economic Challenges: Despite rising provisions for credit losses, AmEx maintained stable credit quality with a low write-off rate. Increased expenses due to customer engagement and operational needs are managed to sustain customer loyalty and long-term revenue growth.
American Express Reports Strong Q3 2024 Earnings, Highlights Growth in Consumer Spending and Strategic Investments
American Express’s Q3 earnings report shows significant growth in revenue and EPS, which has implications for the broader payments industry. With EPS reported at $3.49, beating estimates by around 6.7%, and quarterly revenue reaching $16.64 billion (an 8% year-over-year increase), the results reflect AmEx’s continued momentum in cardholder spending and strategic investments across its consumer and business services segments.
The company also raised its full-year EPS guidance to between $13.75 and $14.05, projecting further stability and growth in its financial metrics despite recent market challenges.
Stephen J. Squeri, Chairman and Chief Executive Officer of American Express, stated that in light of their strong earnings and solid performance from their core operations, they are increasing their full-year EPS projection to $13.75 – $14.05, up from the previous estimate of $13.30 – $13.80. The company anticipates a full-year revenue increase of about 9%, consistent with the forecast provided at the start of the year.
AmEx’s growth is partly driven by robust consumer spending, particularly in travel and leisure, which aligns with broader trends in the payments sector. In Q3, total spending by Card Members rose by 6%, and revenue from card fees grew by 18%. Additionally, the business announced adding 3.3 million more premium Card members, alongside strong credit performance, controlled expenses, and maintaining high retention rates.
AmEx’s high-spending customer base, loyalty programs, and premium travel benefits, which tend to attract affluent users, have fueled cardholder spending.
These users generally demonstrate resilient spending habits, even amid economic uncertainties. The company’s increased revenue in these areas suggests that consumers continue to prioritize experiences and services, a trend also seen in competitors like Visa and Mastercard. This sector-wide focus on higher-end consumers has implications for other players in the industry, as it underscores a shift towards retaining premium customers as a growth strategy.
AmEx’s continued investment in cardholder rewards and services supports its competitive position. Variable customer engagement costs, including rewards and services, are essential to maintain customer loyalty, particularly as competitors ramp up their offerings.
Squeri added that their ongoing success underscores the effectiveness of their strategy to update their products, contributing to growth across their portfolio. So far this year, they have refreshed 40 products worldwide, including recently introducing the new U.S. Consumer Gold Card.
The enhancements in popular categories like dining have spurred growth, particularly among Millennial and Gen-Z consumers, who make up 80% of the new U.S. Consumer Gold Card sign-ups. These demographics are also the company’s fastest-growing group of consumers in the U.S.. The positive initial response to these product updates confirms Squeri’s belief that their investments are well-targeted to boost their offerings and fulfill their customers’ financial and lifestyle needs.
This quarter, AmEx saw a rise in its business development expenses, attributed to increased partner payments due to higher network volumes. Although costly, these investments aim to sustain high customer satisfaction and spending, supporting the company’s long-term revenue goals. American Express also raised its full-year earnings outlook, now projecting earnings per share from $13.75 to $14.05. This increases from its previous forecast of $13.30 to $13.80 per share.
Credit performance also played a crucial role in AmEx’s results. While provisions for credit losses slightly increased to account for possible economic headwinds, the company’s net write-off rates remained stable, suggesting effective risk management. Consolidated provisions for the credit losses increased from $1.2 billion to $1.4 billion. Although this was slightly offset by a lesser reserve increase than the previous year, the increase was caused mainly by greater net write-offs linked to increases in loan balances. The quarter’s net write-off rate was 1.9%, lower than the 2.1% rate from the prior quarter but somewhat higher than the 1.8% rate from the prior year.
This trend is noteworthy as economic pressures, such as rising interest rates and inflation, have impacted consumer credit health.
The company’s total expenses also increased, reaching $12.1 billion, a 9% rise from $11.0 billion the previous year. This increase was mainly due to higher costs related to customer engagement, driven by increased Card Member spending and more frequent use of travel benefits, in addition to more marketing and operational expenses.
American Express’s effective tax rate for the third quarter was 21.8%, higher than the 20.9% in the same quarter last year. This rise was due to specific tax benefits in the previous year that did not occur this quarter.
AmEx’s ability to maintain a low write-off rate compared to other credit card issuers speaks to its relatively high credit card portfolio quality and its customers’ robust financial standing.
The implications of AmEx’s results extend to the broader payments industry, which is experiencing shifts in consumer behavior and adapting to economic conditions. While traditional credit and debit transactions remain strong, a noticeable pivot toward enhancing digital payment capabilities aligns with the broader industry trend toward mobile and contactless payments.
AmEx’s approach, which emphasizes high-touch services and customer loyalty over rapid fintech innovations, contrasts with other industry players prioritizing technology-driven solutions. Nonetheless, its strong financial position suggests that companies in the payment space must carefully balance tech investment and customer engagement strategies to remain competitive.
The impact of regulatory factors is another area where AmEx’s Q3 performance highlights industry-wide concerns. With increased regulatory scrutiny on credit practices and fees in multiple regions, credit card issuers face pressures that could impact future profitability.
AmEx’s steady performance amid these pressures suggests that companies focused on premium services may be better insulated from regulatory shifts. However, it also underscores all players’ need to monitor policy developments closely.
About American Express
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American Express Company and its subsidiaries form a comprehensive payments company with operations across various regions, including the United States, Middle East, Africa, Europe, Australia, Asia Pacific, Latin America, New Zealand, the Caribbean, and Canada. The company is structured into four main segments: U.S. Consumer Services, International Card Services, Commercial Services, and Global Network and Merchant Services. It offers a range of products and services such as charge and credit cards, banking, payment, and financing options; expense management tools; network services; and travel and lifestyle services.
American Express also provides merchant services, including processing, acquisition, servicing, settlement, marketing at the point of sale, and fraud prevention. It manages customer loyalty programs and operates airport lounges under the Centurion Lounge brand. The company markets its products and services to individuals and small to large businesses through online and mobile platforms, customer referrals, affiliate marketing, third-party vendors, telesales, direct mail, in-house sales teams, and advertising. Founded in 1850, American Express is headquartered in New York, New York.
Conclusion
American Express’s Q3 earnings demonstrate resilience and growth, underpinned by strong consumer spending and strategic investments in high-touch customer engagement and premium services. The company’s focus on affluent customers and product updates aimed at younger demographics highlight a shift toward premium, experience-driven offerings, setting it apart from more technology-focused competitors.
While economic factors and rising expenses present challenges, AmEx’s stable credit performance and increased EPS guidance indicate a positive outlook. The company’s approach suggests that premium services and strong customer loyalty can buffer against industry-wide pressures, including regulatory scrutiny.
