American Express Co., whose travel-and-entertainment focus took a beating during the pandemic and is now rebounding, reported strong growth early Friday for its latest quarter, but left at least some equity analysts questioning whether the growth is strong enough.
Analysts zeroed in on revenue growth and card-acquisition rates, in particular, during a conference call with AmEx’s top executives to discuss the company’s fourth-quarter 2022 performance. Meanwhile, the company’s top executives expressed confidence, despite fears of a weakening economy following months of rising inflation and a steady drumbeat of corporate layoffs. “There is clearly uncertainty as regards the macro environment, but we feel good about the momentum we see in our business,” said chief financial officer and vice chairman Jeff Campbell during the call.
On the merchant side of the company’s business, though, AmEx could boast steadily increasing discount-fee revenue as merchants re-open and expand following the waning effects of the pandemic. Fee revenue totaled $30.7 billion for the year, up 25% over 2021, with steadily increasing numbers quarter-by-quarter throughout 2022. This number is closely watched as it represents the company’s largest revenue line item. The increase, Campbell told analysts, came by way of “increasing spending volume in 2022.”
Indeed, Campbell said the company should generate discount-fee revenue each quarter this year “consistent” with 2022’s fourth quarter. These revenues steadily rose quarter-by-quarter during the year, culminating in a fourth-quarter total of $8.2 billion.
But much of the discussion focused on overall revenue, with a particular concern regarding card fees, at 11% of revenue AmEx’s third-largest revenue line after discount fees (58%) and net interest income (19%). While net card fee revenue grew steadily quarter-by-quarter during 2022 compared to 2021, the new-cards-acquired number dipped in the fourth quarter to 3 million after hitting 3.2 million and 3.3 million in the second and third quarters, respectively, prompting some questions from analysts on the call. By contrast, that number had risen steadily throughout 2021.
In response, AmEx chief executive and chairman Steve Squeri, along with Campbell, pointed out net card fee totals grew quarter-by-quarter throughout the year, totaling $6.1 billion for 2022, up 21% over 2021. “Our card-fee growth is super sustainable,” Campbell said, adding the company’s card-retention rates exceed 90%.
The top brass also put to rest any discussion of cutting back on investments in the company’s business lines. “The last thing you want to do is retrench in such a way that you can’t take advantage of the [economic] recovery,” Squeri said. “What’s relevant is for a 172-year-old company to continue to grow.”
For the quarter, AmEx generated $14.2 billion in revenue, up 17%, but net income dipped 9% to $1.57 billion. For the year, revenue totaled $52.9 billion, a 25% increase, while net income fell 7% to $7.5 billion. Network volume for the quarter totaled $413 billion, up 16% year-over-year.
For the near term, Squeri said the company should be able to generate revenue increases of 15% to 17% year-over-year. With the pandemic in the rear-view mirror, “we believe we’ve gotten to that next level of scale,” he added.