American Express (AXP 2.29%), a key player in the global financial services industry, reported third quarter earnings on Friday, Oct. 18, that slightly missed analyst consesnsus estimates on the top line, but handily beat them on the bottom line. Earnings per share came in at $3.49, up 6% year over year. Revenue (net of interest expense) reached a record $16.64 billion, up 8% year over year.
While overall net income increased modestly by 2% to $2.51 billion, the company's continued revenue gains point to a strong operational quarter.
| Metric | Q3 2024 | Analysts' Estimates | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Earnings per share (EPS) | $3.49 | $3.29 | $3.30 | 6% |
| Total revenue (Net of Interest Expense) | $16.64 billion | $16.68 billion | $15.38 billion | 8% |
| Net Income | $2.51 billion | N/A | $2.45 billion | 2% |
Source: Analyst estimates for the quarter provided by FactSet. YOY = Year over year.
Understanding American Express
American Express (Amex) operates a unique closed-loop network, connecting both cardholders and merchants directly. This integrated payments platform allows it to leverage detailed transaction data for better risk management and tailored services. Coupled with strategic partnerships, especially with companies like Delta Air Lines, Amex has built an ecosystem that enhances customer engagement and loyalty.
One of its key strategies focuses on spend-centric revenue, where Amex drives revenue from high cardholder spending through attractive rewards and experiences. It is expanding globally, targeting markets like the U.K., Australia, and Canada to diversify its revenue base amidst fierce domestic competition from rivals like Visa and Mastercard. A strong brand reputation further supports Amex's market position, underpinned by investments in marketing and customer services.
Third-Quarter Review: Financial and Strategic Developments
The 8% year-over-year increase in total revenue to $16.64 billion marks a decade-long streak of record-setting quarters. Card member spending rose 6% to $387.3 billion, aligning with the company's core strategy of enhancing transaction volumes. Card fee revenue growth of 18% demonstrated strong traction in premium products.
Amex noted some challenges, notably an increased provision for credit losses, which rose from $1.2 billion last year to $1.4 billion in the current quarter. This rise, coupled with a net write-off rate of 1.9%, is something for investors to watch if economic conditions cause higher default rates.
Strategic partnerships remain vital, with the co-brand with Delta Air Lines contributing 10% of network volumes and 21% of card member loans.
No significant one-time events or dividend changes were announced. Amex's dividend of $0.70 per share indicates a 17% increase from the past year, pointing to management's confidence in ongoing cash flow generation.
Looking Ahead: Strategic Outlook and Guidance
Looking forward, Amex raised its full-year earnings guidance to a range of $13.75 to $14.05 per share (up from $13.30 to $13.80 previously). This reflects anticipated revenue growth aligning with projections of around 9%. The company plans to bolster its growth through sustained investments in marketing and service enhancements, aiming to capture more market share amidst rising competition.
Investors should watch the dynamics of credit losses and competitive pressure from major industry players. Opportunities lie in strengthening international markets and strategic partnerships that could bolster Amex’s revenue potential in the coming quarters. Observing how Amex balances these challenges while maintaining strong financial growth will be key to understanding its future trajectory.
