Credit card giant American Express (AXP +2.36%) released its second-quarter earnings before the market opened on July 24. Although the company's earnings per share of $4.53 cleared Wall Street's expectations, revenue net of interest expense narrowly missed the mark at $19.64 billion. Shares dropped over 4% following the announcement.
But try not to get fixated on the headline numbers. Sure, they matter, but they don't tell the whole story. The market seems to be missing what's happening with American Express' fee revenue, the annual fees people pay to use the company's premium credit and charge cards. The data in American Express' second-quarter earnings illustrate the brand's strength and why the stock continues to justify its valuation.
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American Express flexing its pricing power
The credit card industry is ferociously competitive. American Express pioneered the premium credit space, but it faces steep competition from big banks and fintech companies like Robinhood Markets. This year was a crucial test of American Express' pricing power after the company raised the annual fee on its flagship Platinum Card from $695 to $895 at the beginning of 2026.
It seems that American Express is passing this test. Fee revenue was the company's fastest-growing revenue item at 15% year over year in Q2, and management anticipates that figure accelerating over the next two quarters, exiting 2026 at a high-teens rate. In other words, customers haven't blinked at the $200 increase. Management noted that its Platinum portfolio is now its fastest-growing consumer group in the United States.
NYSE: AXP
Key Data Points
Continuing to excel in the premium borrower segment
The brand's identity rests squarely with the affluent cardholder. That customer base continues to show strength despite broader U.S. consumer sentiment declining roughly 20% over the past year. During that time, American Express' net write-off rate has held firm at 2%, and the percent of card balances at least 30 days past due actually declined from 1.3% to 1.2%. American Express certainly isn't immune to recessions, but operating in the premium space makes the business more resilient.
Millennials and Gen Z account for approximately 65% of the new consumer accounts American Express added in the second quarter, and 75% of all new accounts were fee-paying products. American Express continues to secure long-term growth by winning over the next generation of premium cardholders, and analysts estimate the company will grow earnings by an average of 14% annually over the next three to five years.
The stock doesn't necessarily look like a bargain at 19 times its 2026 earnings estimates, given that earnings for businesses with credit exposure are notoriously volatile. However, the high-margin revenue American Express continues to generate and grow is the secret sauce that has helped the stock deliver stellar investment returns over the years. I didn't see anything in Q2 earnings that would change that.
