Economic Uncertainty? No Problem for American Express
As the world grapples with economic uncertainty and inflation, American Express is bucking the trend. The credit card giant has reported a stellar third-quarter profit, exceeding analyst expectations and sending a strong signal about the spending habits of its affluent cardholders.
Spending Spree Continues
American Express raked in $2.51 billion in profit, or $3.49 per share, for the quarter ended September 30. This marks a significant increase from the same period last year, when the company earned $2.45 billion, or $3.30 per share. The results surpassed the predicted $3.27 per share, according to analysts surveyed by Zacks Investment Research.
Revenue on Track
The company’s revenue totaled $16.64 billion, meeting Wall Street’s estimates. American Express’s success can be attributed to its card members, who continue to splurge on their cards despite economic headwinds. In fact, customers spent a whopping $387.3 billion on their cards last quarter, a 6% increase from the previous year.
Merchants Pay Up
When merchants accept American Express cards, they pay a fee, which ranges from 2% to 4% depending on industry and size. This fee structure contributes significantly to American Express’s revenue.
Balance and Beyond
Another key factor driving American Express’s growth is the increasing number of customers holding a balance on their cards. The company reported $134.5 billion in card member loans, a 14% increase from last year. This surge in borrowing has led to a 17% jump in interest income, totaling $6.15 billion in the quarter.
Millennials and Gen Z Lead the Charge
According to Chairman and CEO Steve Squeri, the company’s growth can be attributed to its appeal among younger generations. “The new benefits and capabilities we have added in popular categories like dining are fueling our growth with millennial and Gen Z consumers,” Squeri said in a statement. These demographics now represent 80% of new accounts acquired on the U.S. Consumer Gold Card.
Rosy Outlook
American Express has raised its full-year earnings outlook, forecasting earnings between $13.75 and $14.05 per share. This revised estimate surpasses the previous forecast of $13.30 to $13.80 per share. Analysts predict full-year earnings of $13.24 per share.
Shares Take a Hit
Despite the positive news, American Express shares fell 2.5% before the market open on Friday. However, the company’s strong performance suggests that investors may be overly cautious about the economic outlook.
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