Amex's growth rate slows, but leadership sees no immediate downturn

Scott Eells/Bloomberg

American Express has mostly escaped the impact of inflation and overall economic weakness, thanks to strong travel spending and the steady addition of well-heeled, younger consumers.    

Amex on Friday reported strong second-quarter volume but also a slowing growth rate. For the quarter ending June 30, Amex's net revenue was $15.05 billion, up from $13.4 billion the prior year. That fell short of the $15.4 billion consensus estimate of analysts tracked by FactSet Research Systems. Amex reported earnings per share of $2.89, which was also short of the $2.81 per share anticipated by the same analysts.  

Transaction volume was $426.6 billion, achieving a company record that still fell short of the $441.6 billion analysts projected, according to Bloomberg. Overall spending growth slowed from 16% in the first quarter to 8% in the second quarter. Amex's stock was trading lower on Friday, partly on news of the slower growth rate.

"It's hard to apologize for record billings," Steve Squeri, Amex's CEO, said during Friday's earnings call. "It's the billings we need to hit our growth plan so we feel really good about it. And the other point I'll reiterate is that we're in a low-growth economy right now."

The slower growth rate could be partly due to the pandemic, which still affected business operations as recently as early last year. The omicron variant of the coronavirus hurt spending in Amex's core card-spending areas, such as travel and entertainment, during the first quarter of 2022.  

That pushed growth comparatively higher in the first quarter of this year, according to Brian Foran, co-founder of Autonomous Research. "It seems like a lifetime ago, but that depressed travel in 1Q22, and led to an outsize T&E growth of 39% in the first quarter of 2023," Foran said in a Friday research note, adding the second quarter was a more normal 14% year-over-year growth.

Analysts pressed Squeri and Jeff Campbell, Amex's chief financial officer, about slower growth in small-business transaction volume, which rose only 2% in the second quarter, down from 6% in the first quarter. "[Small-business] organic growth has slowed. I don't think that's an Amex phenomenon," Squeri said. 

American Express poised to fill any small-business lending void

Amex is focusing on lending needs for existing small-business customers while it also grows its client base in anticipation of a small-business recovery in the years ahead. Amex earlier this year launched Business Blueprint, a small-business hub that includes cash management, incoming and outgoing bills and access to financial services. 

Amex, which gained technology and improved access to small-business clients when it acquired the fintech Kabbage in 2020, is competing against payment companies such as Square and Stripe as well as banks that offer a mix of payment technology and lending to small businesses.  

In the wake of the Silicon Valley Bank failure this spring and subsequent weakness in some regional and community banks, Squeri earlier this year said Amex is poised to aggressively pursue small-business lending. 

"When small businesses are ready to grow again, we'll be ready to grow judiciously with them," Squeri said on Friday. "Would we prefer that our [small-business enterprise] business was growing like our consumer business? Sure we would. But there are cycles and at this particular point in time, I think you're seeing a little bit of an industrywide slowdown."

In contrast to small business, Amex reported double-digit growth in travel and entertainment spending, noting the second quarter set a record for restaurant reservations through Amex's Resy platform. And booking for consumer travel reached the highest level since before the pandemic. Younger consumers are key contributors. More than 70% of Amex's new card accounts were for premium products, and 60% of new accounts went to millennials and Generation Z.  

"The overall revenue being generated by these new accounts is up substantially over 2019," Squeri said. "Our base is changing in terms of more millennials and Gen Z who grow with us, and as the economy gets better we expect spending to pick up." 

Amex additionally reported $1.2 billion in credit-loss provisions, up from $410 million in 2022, as well as a net reserve of $327 million, up from $58 million the prior year. Amex's delinquency rate was 1.2% in the second quarter, which was the same as the first quarter and still notably below its 1.5% in the fourth quarter of 2019 — the last full quarter before the pandemic. Other elements of credit quality are also improving. Amex disclosed that 8% of its U.S. loans have FICO scores below 660, compared with about 10% before the pandemic.

"We continue to expect these delinquency and write-off rates to increase over time, but they are likely to remain below pre-pandemic levels in 2023," Campbell said. 

Amex affirmed its full-year guidance for 2023, projecting revenue growth of 15% to 17% and earnings per share of $11 to $11.40. Growth for 2024 and beyond should be in the mid teens. 

"I continue to feel very good about our ability to achieve these long-term aspirations," Squeri said.