▶ Full Post Text
American Express reported Friday morning an EPS of $4.53 above the $4.40 estimate, up 11% yoy. Card member spending grew 9%, its strongest in three years, with luxury retail up 18% and travel & entertainment up 10%. Management raised full-year revenue growth guidance to a firm 10%, and CEO cited "better-than-expected performance in the first half" as the reason. Network volumes hit $516.8 billion, billed business $455.8 billion, both up by 9%.
The stock fell as much as 6-7% within an hour of the report anyway, dropping from a prior close of $340.84 down toward the low $320s. Visa and Mastercard, Amex's closest public peers barely moved on same day. If this were a sector-wide worry, rate fears, consumer spending slowdown fears, all three would move together. They didn't, this is specifically an Amex problem.
A few things to note and magnify. Revenue came in at $19.64B, just missing the $19.69B estimate and the network volumes of $516.8 billion missed the Street's $520.9 billion estimate, it suggests the spending strength wasn't converting into top-line growth the management implied. One report suggests that Amex is setting aside more money anticipating loans going bad. And instead of letting that extra revenue flow straight into higher profit, management explicitly said it's reinvesting the outperformance into growth initiatives, keeping full-year EPS estimate unchanged at $17.30-17.90 despite raising the revenue outlook. Investors interpreted this as spending of the extra income instead of banking it.
There's a bull case scenario also. Card spending at a three-year high, particularly in premium categories like luxury retail and travel, is a signal about the health of Amex's specific high-income customer base. If you believe affluent spending stays strong even as the rest of the economy worries on rate and inflation. AXP customer mix is arguably the most defensive part of the consumer space. The market may be overreacting to a credit provision and a revenue slight-miss on a quarter that was otherwise genuinely strong.
So does the credit provision increase and the decision to reinvest the earning instead of banking it justify a 6% single-day drop or is the market being harsh on a company whose core customer base, premium cardholders, just showed its strongest spending in three years.