American Express (AXP) stock took a dip on Friday after the company’s third-quarter earnings report failed to fully impress investors. While the company delivered solid revenue growth, the numbers fell slightly short of analyst expectations, sparking concerns about future growth.
Mixed Signals in the Q3 Report
Revenue, net of interest expense, increased 8% year-on-year to $16.64 billion, just shy of the anticipated $16.67 billion. This growth was driven by higher loan volumes, stable growth in card member spending, and a surge in card fee revenue. However, the performance was somewhat dampened by weaker discount revenues.
Notably, Travel & Entertainment (T&E) spending, a key growth area for American Express, slowed to 6% growth, down from 7% in the previous quarter. While this remains a positive sign of continued recovery in travel spending, it signals a potential moderation in this key segment.
On the bright side, American Express’s net interest income (NII) saw a significant 16% year-over-year jump to $4.01 billion, exceeding expectations. This strong performance is a positive indicator of the company’s financial health and its ability to benefit from rising interest rates.
Analyst Perspectives and Key Focus Areas
Goldman Sachs analyst Ryan M. Nash maintained a Buy rating on American Express with a price target of $300. While recognizing the mixed performance, Nash acknowledged the company’s strong NII and card fee growth. However, he highlighted the need to monitor the revenue mix, particularly as NII growth is expected to slow in the future.
Nash will be closely watching the upcoming earnings call to gain insight into several key areas:
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Revenue Growth Outlook:
The analyst is keen to understand the rationale behind American Express’s revised revenue growth forecast for 2024, now at around 9% compared to the previous 9%-11%.*
Card Fee Performance:
Nash will be looking for updates on the company’s card fee performance, as this segment continues to be a major driver of growth.*
Billed Business Growth:
The recent quarter saw a flat billed business growth, and Nash will be seeking clarity on the trajectory for this metric going forward.*
Net Interest Income (NII) Trend:
While NII remains a positive contributor, the growth rate has slowed slightly from 20% in Q2 to 17%. Nash will be looking for insights on the company’s outlook for NII in the coming quarters.*
Customer Engagement Costs:
The analyst is interested in understanding the company’s plans for managing customer engagement costs, particularly in light of the recent decline in Variable Engagement Costs (VECs).*
New Card Acquisition Momentum:
American Express added 3.3 million new card members in the third quarter, and Nash will be seeking updates on whether the company can maintain this strong acquisition momentum.*
Credit Performance:
The company’s credit performance remained in line with expectations, with provisions meeting targets and net charge-offs coming in lower than anticipated. However, Nash will be looking for further clarification on the company’s credit outlook.