American Express Co. achieved a milestone in its financial performance last year by surpassing $50 billion in annual revenue. This success is attributed to the consistently high spending levels among its customer base, particularly among premium customers. The company’s strategy of targeting younger, millennial, and Gen Z customers has proven to be a key factor in driving growth. According to Chief Executive Stephen Squeri, these demographic groups represent over 60% of proprietary consumer card acquisitions during the quarter and for the full year.
The Power of Millennial Spending
According to Bill Smead, Chief Investment Officer of the Smead Value Fund, the strong results of American Express are a validation of his long-held belief in the influence of millennial spending on the economy. As a top-10 holding of the fund, Amex’s performance highlights the growing impact of the millennial demographic as the primary driving force of the economy. Smead has held this perspective for the past five to six years.
The United States currently has 92 million millennials, who as a demographic, have been observed to be approximately seven years behind previous generations regarding reaching important milestones such as marriage, parenthood, and homeownership. However, as millennials continue to mature, American Express (Amex) has the potential to capitalize on its increased spending on necessities. It is believed that Amex is already benefiting from this trend, as it is the most popular credit card among millennials. This is because millennials have a strong inclination towards traveling, and even as they progress towards marriage, parenthood, and homeownership, they continue to rely on their Amex cards, as they can accumulate points for travel.
An Upbeat Outlook for the Year Ahead
American Express (Amex) is optimistic about the upcoming year, forecasting a 15-17% increase in revenue and earnings per share of $11.00 to $11.40. These projections surpass analysts’ expectations, with the FactSet consensus predicting revenue growth of 11% above 2022 levels, equating to $58.82 billion, and an EPS of $10.53.
According to Chief Financial Officer, Jeff Campbell, the company’s outlook is currently surpassing expectations from a year ago. Furthermore, the company has decided to raise its quarterly dividend by 15%, from 52 cents per share to 60 cents per share, which serves as a demonstration of confidence in the company’s guidance and future performance.
Campbell pointed to “strong spending patterns” in the U.S. and elsewhere, “including in places you might not expect, like Europe.”
American Express logged a fourth-quarter net income of $1.57 billion, or $2.07 a share, compared with $1.72 billion, or $2.18 a share, in the year-ago quarter. The FactSet consensus was $2.23 a share.
Quarterly revenue net of interest expense rose to $14.18 billion from $12.16 billion, while analysts were looking for $14.23 billion. Annual revenue came in at $52.86 billion.
Total Provisions for Credit Losses
American Express reported that provisions for credit losses amounted to $1.03 billion, which is a significant increase from the $53 million reported in the previous year. The increase can be attributed to a $462 million reserve build, which is in contrast to the $168 million net reserve release reported in the previous year. Additionally, there were higher net write-offs recorded in the current period.
American Express anticipated an increase in write-off and delinquency rates as the effects of pandemic-related stimulus measures dissipated. However, according to Campbell, the rates have risen at a slower pace than anticipated.
Conclusion
In summary, the impressive results and optimistic forecast for the forthcoming year by American Express reflect the purchasing capability of the millennial demographic. As this generation progresses through life stages such as marriage, parenthood, and property ownership, they continue to rely on American Express cards, thereby contributing to the company’s expansion. American Express’ emphasis on high-end clients and a 15% enhancement in dividends position the company for sustained prosperity in the upcoming year.
