American Express (AXP) Q1 2024: International Card Spend Jumps 13%, Offsetting SME Drag

April 19, 2024 | By EarningsIQ Research

International card momentum and premium product demand sustained double-digit revenue growth for American Express, even as small business spend lagged. Disciplined cost management and robust credit quality underpinned confidence in full-year guidance, with product refreshes and digital engagement positioned as key levers for future growth.

Summary

• International Expansion Drives Growth: Double-digit gains in international card spend and new premium cardholder acquisitions anchor revenue trajectory.
• SME Weakness Persists: Small business spend remains a drag, but acquisition and credit quality trends are stable.
• Premium Model Reinforced: Product refreshes and digital rewards innovation fuel engagement and retention, supporting long-term strategy.

Business Overview

American Express is a global payments and financial services company that generates revenue from card member spending, annual fees, interest income, and merchant discount fees. Its major segments include U.S. Consumer, Commercial Services (primarily small and medium-sized enterprises, or SME), and International Card Services. The company’s business model centers on acquiring high-spending, high-credit-quality customers and delivering premium rewards and digital engagement to maximize lifetime value.

Performance Analysis

American Express delivered 11% year-over-year revenue growth in Q1 2024, with net income and EPS tracking well above prior-year levels. International card services led the way, posting 13% FX-adjusted billings growth, while U.S. consumer spend also rose a robust 8%.

Fee-based products, which now account for 70% of new card acquisitions, provided a 16% lift in net card fees. Younger demographics, especially Millennials and Gen Z, drove both card acquisitions and spending, with 60% of new consumer accounts globally sourced from these cohorts. Net interest income continued to expand—up 26% year-over-year—supported by higher revolving balances and favorable funding costs.

• International Card Outperformance: Double-digit spend growth and premium brand positioning outside the U.S. continue to outpace other segments.
• SME Spend Softness: U.S. small business billings grew just 1%, reflecting macro headwinds and cautious spending patterns, though card acquisition and credit metrics remain strong.
• Credit Quality Remains Best-in-Class: Delinquency and write-off rates rose only modestly and remain well-controlled, aided by effective risk management and relief programs.

Operating expenses were flat year-over-year, with disciplined management of salaries and benefits offsetting increased marketing investment. Variable customer engagement costs tracked slightly above revenue growth, reflecting a focus on premium rewards and ongoing product refreshes.

Executive Commentary

Strategic Positioning

1. Premium Cardholder Focus and Product Refreshes

Amex’s strategy centers on acquiring and engaging high-spending, fee-paying customers, as evidenced by 70% of new cards carrying annual fees and ongoing product refreshes across flagship lines (e.g., Delta Reserve, Hilton small business, British Airways). These refreshes not only stimulate new demand but also drive upgrades and deepen engagement with the existing base.

2. International Growth Engine

International Card Services outpaces all other segments, with brand premiumization and targeted investments driving double-digit spend and card acquisition. Management views international as a key long-term growth lever, with acceptance initiatives and local product innovation supporting continued expansion.

3. Digital Rewards and Engagement Innovation

Continual enhancements to Membership Rewards, including partner-funded benefits and digital redemption features (such as applying points to specific transactions), are increasing both perceived value and economic efficiency. This supports loyalty, retention, and spend velocity across demographics.

4. SME Segment Repositioning

While SME spend remains subdued, Amex is leveraging strong acquisition and credit metrics to maintain its franchise position. The company is prepared to capture upside as small business confidence and spending cycles recover, with tailored engagement and risk-managed lending programs.

5. Funding and Balance Sheet Efficiency

Amex’s deposit funding mix, with 92% of direct deposits below FDIC insurance limits, provides a stable, low-cost capital base. This supports lending growth, especially in premium segments, and underpins resilience in various rate environments.

Key Considerations

This quarter highlighted the durability of Amex’s premium, fee-based model, as well as the company’s ability to balance growth investments with disciplined cost control. Investors should weigh the following:

Key Considerations:

• International Card Momentum: Sustained double-digit international growth is a structural advantage and a hedge against U.S.-centric macro risks.
• Product Refresh Cycle: Ongoing refreshes are critical for both new acquisition and existing member engagement, with early results from Delta Reserve and other lines exceeding expectations.
• SME Spend Volatility: The commercial segment remains a weak spot, but management’s acquisition and credit discipline position Amex to rebound as macro conditions improve.
• Cost and Capital Discipline: Flat operating expenses and a stable CET1 ratio reflect strong internal controls and capital return capacity, even as marketing spend rises.
• Regulatory and Fee Rule Exposure: CFPB late fee rule impact is minimal (<1% of revenue), but ongoing vigilance around regulatory change is warranted.

Risks

SME billings growth remains an outsized risk, with persistent macro-driven caution among small businesses that could weigh on overall spend momentum. International expansion, while a growth driver, also exposes Amex to geopolitical and FX volatility. Regulatory uncertainty, particularly around interchange and late fees, remains a background watchpoint, but current exposure is limited. Investors should also monitor the pace and effectiveness of product refreshes in sustaining engagement and fee income.

Forward Outlook

For Q2 2024, American Express guided to:

• Revenue growth tracking in line with the 9-11% full-year target
• Continued moderation in net interest income growth as loan balances stabilize

For full-year 2024, management reaffirmed guidance:

• Revenue growth of 9% to 11%
• EPS range of $12.65 to $13.15

Management emphasized that international and premium card momentum are embedded in guidance, and that the impact of the pending sale of the certified business is not yet included. Continued investment in marketing and product innovation is expected, with operating expense leverage offsetting higher variable engagement costs.

• International and premium cardholder growth remain key drivers
• SME spend recovery is a potential upside lever if macro conditions improve

Takeaways

American Express’s Q1 results reinforce the power of its premium, fee-based engine, underpinned by international outperformance and resilient consumer spend. Disciplined execution on costs and risk management support capital return and long-term growth aspirations.

• International Outperformance: Double-digit international spend and card acquisition provide a durable growth engine and diversification beyond the U.S. market.
• SME Weakness Offset by Consumer and Product Innovation: While SME spend is sluggish, robust new card acquisition, especially among Millennials and Gen Z, and successful product refreshes are sustaining top-line momentum and engagement.
• Forward Focus on Engagement, Efficiency, and Global Expansion: Investors should watch for further product refresh impacts, SME spend inflection, and the pace of international acceptance and digital engagement innovation as key drivers of future results.

Conclusion

American Express’s premium-centric strategy is delivering consistent, diversified growth, even as small business spend remains a headwind. International expansion, product innovation, and disciplined cost management position the company to sustain performance and capitalize on future opportunities as macro conditions evolve.

Industry Read-Through

Amex’s results signal that premium, fee-based models and international diversification are structural advantages in the payments industry, especially as U.S. SME and commercial spend remain volatile. Competitors relying on SME or non-fee models may face greater near-term pressure, while those with strong digital engagement and rewards ecosystems will be better positioned for demographic shifts. The muted impact of regulatory fee changes for Amex highlights the strategic value of differentiated pricing and customer value propositions. Industry participants should focus on product innovation, international expansion, and digital loyalty as core levers for durable growth.

AXP Financials Payments Premium Cards International SME Rewards Fee-Based Model