April 20, 2017
By Jim Daly
Still smarting from the loss of its big cobranded card and acceptance relationship with Costco Wholesale Corp. last June, American Express Co. managed to beat analysts’ earnings estimates in the first quarter and said it has planted the seeds for future growth.
As an example, AmEx said its efforts to use digital channels to find new cardholders is bearing fruit. The company added 1.7 million new cards in the United States in the first quarter and 2.6 million worldwide. The increase came even as AmEx lowered marketing spending by 4% after a big push in 2016’s fourth quarter.
“Over 60% of the global consumer cards we acquired in the quarter came through digital channels, and digital is particularly important, as you know, for acquiring new Millennial cardmembers,” executive vice president and chief financial officer Jeffrey C. Campbell said Wednesday afternoon in a conference call with analysts, according to a Thomson Reuters StreetEvents transcript.
Still, thanks largely to the Costco loss, AmEx’s U.S. cards in force fell 17% to 48.2 million in the first quarter from 57.9 million a year earlier. Outside the U.S., the card base grew 4% to 63 million, bringing AmEx’s total to 111.2 million, down 6%.
AmEx reported $252.3 billion in card-billed business, down 1% from $253.8 billion in 2016’s first quarter. In the U.S., billed business slipped 6% to $165.4 billion, but international volume grew 12% to $86.9 billion.
Cardholder spending generated $4.52 billion in discount revenue, off 3% from $4.64 billion a year earlier. Excluding currency fluctuations and last year’s Costco revenues, discount revenue would have risen 6%.
AmEx’s worldwide average discount rate was 2.45% of the sale in the first quarter, up one basis point from 2.44% a year earlier. AmEx said in a slide presentation that “the increase reflects lower discount-rate volume coming off the network”—a reference to lower-margin Costco pricing—more than offsetting rate pressure from merchant negotiations, including those tied to new regulations in Europe, changes in the industry and regional mix of its merchants, and the growth of its OptBlue program.
OptBlue, AmEx’s effort to book small-business acceptors by enlisting bank card merchant acquirers to recruit and service them, added 1 million merchants last year.
In all, AmEx posted revenues of $7.89 billion net of interest expense, down 2% from $8.06 billion a year earlier when adjusted for currency fluctuations. Net income of $1.24 billion was down 13% from the prior period’s $1.43 billion.
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