Q4 2021 American Express Co Earnings Call
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As a reminder, today's call is being recorded.
I would now like to turn the conference over to our host head of Investor Relations Ms. Vivian Zhang. Please go ahead.
Thank you Alan and thank you all for joining today's call.
Reminder, before we begin today's discussion contains forward looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our <unk>.
<unk> on file with the SEC. The discussion today also contains non-GAAP financial measures the comparable GAAP financial measures are included in this quarter's earnings materials as well as earnings materials for the prior periods we discussed.
All of these are posted on our website at IR Dot American Express Dot com.
We will begin today with Steve <unk>, Chairman and CEO , who will start with some remarks about the company's progress and results and then Jeff Campbell Chief Financial Officer will provide a more detailed review of our financial performance. After that we will move to a Q&A session on the results with both Steve and Jeff with that let me turn it.
Over to Steve Thanks, Vivian and good morning, everyone. As you saw in our press release, a short while ago, we reported strong quarterly and full year revenue growth and earnings for 2021, thanks to the efforts of our dedicated and talented colleagues around the globe we.
We also provided revenue and EPS guidance for 2022, and we announced a new growth plan that resets our longer term aspirations for revenue and EPS growth to levels that are higher than what we were delivering in the years before the pandemic.
I want to spend my time today talking about why these results and our progress over the last few years has me excited about the future and our aspiration to deliver higher levels of sustainable profitable growth.
As we've seen in our results for Q4 and the full year the capabilities. We've built over the past few years by investing in our customers our brand and our talent are helping us drive share scale and relevance that leads to profitable growth and we believe that that will continue as the global economy continues to.
Proof.
Our strong performance across a number of key business metrics helped deliver revenue growth of 30% in the fourth quarter and 17% for the full year diluted EPS for the quarter was $2 18.
And $10 <unk> for the full year.
In the near term, we expect full year revenue growth to remain at elevated levels, reaching 18% to 20% in 2022, driven by the execution of our growth plan and the recovery tailwind. We anticipate from continued improvement in the macroeconomic environment, we expect EPS of between.
$9 25, and $9 65.
In 2022.
As we think about 2023, the continuation of the recovery tailwind could drive revenue growth in the mid teens, which in turn should provide a platform for mid teens EPS growth.
Looking further out as we returned to a more steady state economic environment, we aspire to achieve revenue growth in excess of 10% and EPS growth in the mid teens under a new growth plan for 2024 and beyond.
We've learned a lot over the past few years that we believe will help us achieve our growth plan aspirations the business imperatives and strategies, we focused on pre pandemic. The decisions. We made when COVID-19 first hit to protect our customers and colleagues and our pivot early in the recovery cycle to ramp up investments in a number of key areas all proved to be the right move.
Moves that have been good for our business.
Most importantly, our experience through this period has reinforced our conviction that investing strategically in our customers' brand and talent is absolutely critical driving high levels of growth.
We've seen that play out in the results we delivered throughout 2021, our fourth quarter performance continued the trends we saw all year in a number of areas that are core to our growth over the long term spend.
<unk> spending growth reached a record quarterly high driven by continued increases in goods and services spending which was 24% above pre pandemic levels global consumer goods and services spending in the quarter grew 26% versus 2019, and we saw continued robust growth in small business BW spending.
<unk>, which increased 25% over Q4 2019 levels overall <unk> spending also continued to improve reaching 82% of pre pandemic levels driven by stronger consumer travel spend.
Customer retention and satisfaction continue to be very strong and remained above pre pandemic levels. For example retention rates and global consumer are above 98% and for the second year in a row and the 11th time in 15 years. We ranked first in J D. Power's annual credit card satisfaction study of U S consumers.
Credit performance also continues to be outstanding with key metrics near historical lows and our card members are building loan balances at a modest pace customer engagement with our products services and capabilities continued at high levels in the quarter.
The strong engagement, which is fueled by our ongoing investments in value propositions marketing and new digital services is helping to drive the results I, just spoke about and billings and loan growth as well as customer retention and satisfaction levels. Additionally, our customer focused innovation strategy, which has driven increases in customer engagement.
<unk> has continued to attract large numbers of new customers New card acquisitions reached $2 7 million in Q4, driven by strong demand for our premium fee based products, where we saw acquisitions nearly doubled year over year.
In consumer millennials and Gen Z customers are driving the growth in acquisitions, representing around 60% of the new accounts, we acquired globally in 2021, and commercial Q4 closed out as one of the best years, we've ever seen for U S. SME New account acquisition.
The momentum we generated throughout 2021 further strengthens our resolve to continue our focus on our strategic imperatives, we laid out back in 2018, expanding our leadership position in the premium consumer space by providing a differentiated and an ever expanding range of services and lifestyle focus Val.
New propositions building.
Building on our strong leadership position in commercial payments by being the key provider of payments and working capital solutions for small and medium sized businesses expanding our merchant network globally to give our card members more places to use their cards and staying on the leading edge of technology and digital payment solutions to make American express an essential part of our.
Customers' digital lives.
We are entering 2022, and a position of strength and based on the momentum with which we exited 2021 and the opportunities. We see ahead, we feel very good about the future. We believe that continuing our strategy of investing in high levels and our customers' brands and talent as we implement our growth plan will position us well as we seek to.
To achieve our growth aspirations in 2024 and beyond.
I'll now turn it over to Jeff to provide more details on our performance for the fourth quarter and our expectations for the future and after that we'll take your questions. Thank you Jeff.
Well, thank you, Steve and good morning, everyone. It's great to be here to talk about our fourth quarter and full year of 2021 results. The ambitious growth plan that Steve just talked about talked about and what it all means for 2022 beyond.
You see the growth momentum that Steve just discussed and our summary financials on slide two with fourth quarter revenues of $12 1 billion up 31% and full year revenues of $42 4 billion.
17%, both on an FX adjusted basis.
And understanding our full year net income of $8 1 billion and earnings per share $10 <unk>.
I would point out that we had around three $5 billion of significant impacts from items that we do not expect to repeat in the same magnitude going forward, including a $2 5 billion credit reserve release benefit in provision as well as a few sizable net gains on equity.
Investments.
Getting into a more detailed look at our results, let's start with volumes Youll notice in the several views of volumes on slides three through nine that we continue to show 2021 volume trends on both a year over year basis and relative to 2019.
There are a few key insights that I would highlight across these slides that strengthen our conviction in the investment strategy. We have been focused on to deliver our new growth plan.
To start we saw record levels of spending on our network in both the fourth quarter and full year 2021, with total network volumes in billed business volumes, both up more than 10% relative to 2019 on an FX adjusted basis in the fourth quarter as you can see on slide three.
This growth in billed business as shown on slides four and five is being driven by continued momentum in spending on goods and services, which strengthened sequentially and grew 24% versus 2019 and Q4.
This momentum is from the strong growth in online and card not present spending that continued throughout 2021, even as offline spending fully recovered and resumed growth demonstrating the lasting effect of the behavioral changes we've seen during the pandemic.
Importantly, this 24% growth versus 2019 in Q4 represents a cumulative growth rate over the past two years that is well above the growth rate, we were seeing pre pandemic.
Yes.
In our consumer business.
Focus on attracting and engaging younger cohorts of card members through expanding our value propositions and digital capabilities is fueling the 50% growth in spending from our millennial and Gen Z customers you see slide six.
Spending from all other age cohorts also showed steady improvement throughout 2021 and exceeded pre pandemic levels in Q4.
Our strategic focus on helping our small and medium size enterprise clients run their businesses by expanding the range of products and capabilities that meet their BTB payments and working capital needs.
Driving the strong SME spending trends you see on slide seven.
Global SME spending, particularly <unk> spending on goods and services has been driving the growth of our commercial build business throughout 2021 and reached 25% above pre pandemic levels in Q4.
Now turning to <unk> spending you can see on slide eight that it continues to recover in line with our expectations.
With overall <unk> spending reached 82% of 2019 levels in the fourth quarter.
We did see some modest impacts from the <unk> variant in T&D spending as the pace of recovery slowed a bit in December .
But even with that modest slowdown U S. Consumer journey was not only fully recovered in the fourth quarter, but actually grew 8% above 2019 levels.
On balance the teeny trends, we have seen throughout 2021 reinforce our view of the travel and entertainment spending will eventually fully recovered.
But at varying paces across customer types and geographies.
And we remain focused on maintaining our leadership position in operating offering differentiated travel and lifestyle benefits to our consumer and commercial customers as they return to travel.
Finally on slide nine you'll see that our billed business momentum continues to be led by the U S. We're spending improved sequentially throughout 2021 and grew 16% above 2019 levels in the fourth quarter.
International build business has also shown continued steady, though smaller improvements with spending almost fully recovered in Q4.
Potently, though.
<unk> and goods and services spending continues to be strong both in the U S and outside of the U S.
So to all of these takeaways mean for 2022 and beyond.
Importantly, we expect the strong momentum in goods and services spending to continue.
Given the investments we've made in premium card member engagement prospect acquisition value propositions that particularly appeal to our millennial Gen Z and SME customers growing our coverage and expanding relationships with key partners.
For <unk>, we expect the total global consumer and SME <unk> spending will be fully recovered by the end of 2022 led by the growth in the U S.
The recovery will be slower for the international and cross border components of the spend.
We are also long said that large and global corporate T&D spending would be the last to recover across our customer types.
So these spending types may represent a steady tailwind in <unk> 22 and 2023.
As they gradually recover.
Moving onto receivable and loan balances on slide 10, we are seeing good sequential growth in our lending balances is led by spending and so the portion of our lending balances that are revolving is recovering more slowly.
Because our balances are spending driven we do expect to continue to see a strong rebound with loan balances surpassing 2019 levels in 2022.
But we expect it to take more time for the interest bearing portion of these balances to rebuild as paydown rates continue to remain elevated due to the liquidity and strength amongst our customer base.
Turning next to credit and provision on slides 11 through 13 as you flip through the slides there are a few key points I'd like you to takeaway.
Most importantly, we continue to see extremely strong credit performance with card member loans and receivables write off and delinquency rates remaining around historical lows as.
As loan balances begin to rebuild more meaningfully we do expect delinquency and loss rates to slowly move up over time, but we expect them to remain below pre pandemic levels in 2020 two.
The strong credit performance combined with continued improvement in the macroeconomic outlook throughout 2021 drove a one 4 billion provision expense benefit.
For the full year.
It's the low write offs were fully offset by the reserve releases as shown on slide 12.
As you'll see on slide 13, we ended 2021 with $3 $4 billion of reserves, representing three 7% of our loan balances and 0.1% of our card member receivable balances respectively.
This is well below the reserve levels, we had pre pandemic given the strong credit performance we've seen.
In 2022, we will be growing over the $2 5 billion reserve release benefit we saw in 2021 since I would not expect to see reserve releases of the same magnitude going forward.
In fact.
Ending on credit trends and the pace at which our balance sheet grows its possible we may need to build some modest level of reserves.
Moving next to revenues on Slide 14, total revenues were up 30% year over year in the fourth quarter up 17% for the full year. This is well above our original expectations for the year driven by the successful execution of our investment strategy and it is part of what Emboldens us to launch our new growth plan.
Before I get into more details about our largest revenue drivers in the next few slides I would note that other fees and commissions in the other revenue were both up year over year in the fourth quarter and for the full year, primarily driven by the uptick in travel related revenues, we began to see in the second half of 2021.
These travel related revenue still remain well below 2019 levels, however, and their complete recovery will likely lag and be a tailwind into 2023, along with international and cross border travel.
Turning to our largest revenue line discount revenue on slide 15, you see it grew 36% year over year in Q4, and 25% for the full year on an FX adjusted basis. This growth was primarily driven by the momentum in goods and services spending we saw throughout 2021.
Net card fee revenues have grown consistently throughout the pandemic and for the full year of 2021 were up 10% year over year and up 28% versus 2019 as you can see on slide 16.
The resiliency of the subscription like revenues demonstrates the impact of the investments we've made in our premium value propositions and the continued attractiveness of it.
Those value propositions to both prospects and existing customers.
As a result, I expect net card fee growth to accelerate from these already high growth rates in 2022.
Sure.
Turning to net interest income on slide 17, you can see that it was up 11% year over year in the fourth quarter. This is the second consecutive quarter of year over year growth as we clearly hit an inflection point in the second half of 2021.
The growth in net interest income is slower than the growth in lending.
Due to the strong liquidity demonstrated by our customers that I spoke about earlier, which is leading to both our historically low credit costs.
And to high pay down rates that are driving lower net interest yield and a slower recovery in revolving loan balances.
Going ahead, we expect net interest income to be a tailwind to our revenue growth in 2022 and likely 2023.
Due to the slower recovery in revolving loan balances.
So to sum up on revenues the successful execution of our investment strategy has driven the revenue recovery momentum you see on slide 18.
Looking forward into 2022, we expect to see revenue growth of 18% to 20% driven.
By the continued strong growth in spend and card fee revenues and the lingering recovery tailwind.
From net interest income and travel related revenues.
The revenue momentum we saw in 2021 was clearly accelerated by the investments we made in marketing value propositions technology and people.
And those investments show up across the expense lines, you'll see on slide 19.
Starting with variable customer engagement expenses at the top of Slide 19, there are a few things to think about most.
Most importantly, the investments we are making in our premium value propositions are resonating with our customers and this of course is driving growth in those expense lines.
In addition over the course of the pandemic, we added some temporary incremental benefits to many of our premium products and an effort we refer to as value injection, because our customers were not able to take advantage of many of the travel related aspects of our value propositions.
Because of this value injection effort chairman really showed up in the marketing expense line.
Throughout 2021, we gradually wound down the value injection offers as our customers were again engaging more with the travel aspects of our value propositions as well as with the new rewards and benefits we introduced through recent product refreshes.
This is all a good thing in terms of our long term customer retention and growth prospects.
Does however mean youll see more year over year growth in these variable customer engagement costs.
Putting all of these dynamics together I would expect to variable customer engagement costs overall run at around 42% of total revenues in 2022.
Moving to the bottom of the slide operating expenses were just over $11 billion for full year 2021 and in line with 2020.
Understanding our Opex results. However, it's important to point out that we benefited from 707 $767 million and net mark to market gains in our Amex ventures strategic investment portfolio in 2021.
And that these gains are reported in the Opex line.
We also increased investments in the critical areas of technology and our talented colleague base in 2021 and expect to continue to grow our investments in these areas. This year for 2022, we expect our operating expenses to be a bit over $12 billion and we see these costs as a key source of lever.
Ridge relative to our much higher level of revenue growth.
Last our effective tax rate for 2021 was around 25% and I'd expect a similar effective tax rate in 2022 absent any legislative changes.
Turning next to our marketing investments, we are making to build growth momentum you can see on slide 20 that we invested around $1 $6 billion in marketing in the fourth quarter and $5 3 billion for the full year as we continued to ramp up new card acquisitions, all winding down our value injection efforts with <unk>.
Wired $2 7 million, new cards up 54% year over year.
Steve emphasize the critical point, however that in particular, we see great demand for our premium fee based products with new accounts acquired on these products almost doubling year over year, and representing 67% of the new accounts acquired in the quarter.
Acquisitions of New U S consumer and small business platinum card members were at all time highs. This year with Q4 being a record quarter of new account acquisitions for both of these refreshed products.
Much more importantly, though then just the total number of cards, we focus internally on the overall level of spend and fee revenue growth we bring on from these new acquisitions.
We are pleased to see that the revenues from 'twenty to 'twenty. One is acquisitions are trending significantly stronger than what we saw pre pandemic.
Looking forward, we expect to spend around $5 billion in marketing in 2022.
Turning next to capital on Slide 21, we returned $9 billion capital to our shareholders in 2021, including common stock repurchases of seven 6 billion and $1 $4 billion in common stock dividends on the back of a starting excess capital position and strong earnings generation.
As a result, we.
We ended the year with our CET, one ratio back within our targeted range, 10% to 11%.
In Q1, 2022, and another sign of our growing confidence in our growth prospects, we expect to increase our dividend by around 20%.
52, <unk> and to continue to return to shareholders, the excess capital regenerate, while supporting our balance sheet growth.
That brings me to our growth plan on Slide 22, and then we will open up the call for your questions.
The combination of our pre pandemic strategies, our learnings from the pandemic and the strong momentum we have achieved have all come together to embolden us to announce our new growth plan.
What does that mean financially.
In the nearer term, we expect our revenue growth to be significantly higher than our long term aspiration due to the range of pandemic recovery tailwind that I've talked about throughout my remarks, which is why we have given 2022 guidance of 18% to 20% revenue growth.
We've also given EPS guidance for 2022 of $9 25 to $9 65.
We feel good about this earnings guidance as the momentum we have built on the revenue side helps us to grow over the number of notable items that benefited our 2021 results that we certainly don't expect to repeat in the same magnitude in 2022.
As I discussed at the very beginning of my remarks. This morning.
Our 2022 guidance does assume an economy that will continue to improve and reflects what we know today about the regulatory and competitive environment, but also assumes that based on current exchange rates, we would not see a significant impact from FX in our reported revenue growth in 2022.
In 2023, we expect our revenue growth to remain above our long term aspirational targets.
Due to the lingering recovery tailwind, which should create a platform for producing mid teens EPS growth.
Longer term as we get to a more steady state macro environment, we have an aspiration of delivering revenue growth in excess of 10% and mid teens EPS growth on a sustainable basis in 2024 and beyond.
In closing we are committed to executing against our new growth plan will be running the company with a focus on achieving our accelerated growth aspirations.
That I will turn the call back over to Vivian.
Thank you Jeff before we open up the lines for Q&A I'll ask those in the queue to please limit yourself to just one question. Thank you for your cooperation and with that the operator will now open the line for questions Alan.
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Our first question comes from Ryan Nash with Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning, Ryan.
So it's good to hear about the better than expected 2024, plus long term aspirations for.
Excess of 10% revenue growth and mid teens EPS growth.
So Steve I was maybe talking I'm, hoping you can maybe just talk about what is allowing you to drive this better structural growth is it the investments youre, making the brand resonating more with investors.
And what are the key drivers and.
Clearly you're investing heavily in the near term, Jeff mentioned higher variable engagement costs can you maybe just talk about what should give investors confidence that as we get to 2020 for the business going to be able to drive operating leverage versus historically, a view of reinvesting a lot into the business.
Lastly, one point of clarification, Jeff can you just clarify the platform for mid teens EPS growth were you mentioning that you expect mid teens in 'twenty three or more than it was positioning you well for mid teens within 24. Thanks.
Well, maybe I'll work backwards.
The allowance.
The language on 2023.
Around EPS growth Ryan is meant to make the point that we are.
Certainly given the tailwind is going to drive again very high revenue growth and that creates a great platform for steady earnings growth.
The caution there is just you still have some volatility in how credit reserves may play out.
And so when you think about sort of the total level of earnings in 2022, and 23 I feel pretty confident could you have some result that moves reserve releases between one year and another which.
Skewed the actual year over year growth number a bit you might but I think the core earnings power will be there given the high revenue growth that Steve is going to talk about next year, but just to just talk about the operating leverage for a second two because.
When you look at and Jeff mentioned that we had sort of contra to operating expense with debenture gains. This year when you look at that.
You will have operating expense leverage growth. This particular year, because youre looking at 18% to 20%.
Revenue growth and if you sort of normally even if you don't normalize it yeah.
Youre going to have a much higher revenue growth than you will so we're still going to drive operating expense growth throughout this throughout our journey, but let me talk to you about what gives me the confidence and when I look at sort of what we've done over the last four years, where we are now and how we are exiting.
What I would sum this up is it's a combination of three things.
Is the strategy that we put in place. It is the secular tailwind that we have in a momentum I'm going to start from the back and work my way forward.
Look at the momentum I mean, you've got 30% revenue growth in this particular quarter you got $2 7 million cards that we acquired you've got historically high billings growth.
We haven't gotten into this but we see travel bookings when we looked at travel bookings in the fourth quarter. It was 24% up over 19, when we look at the first couple of weeks in January we're 44% up over 19, so we have tremendous momentum entering 2022.
And I'll move to the beginning and go to the strategy, we have to be back in 2018 and I made this in my remarks, we talked about being the premium card provider and I think the skepticism was for millennials and Gen Z that skepticism from my perspective is over.
60% of the cards that we acquired are millennials and Gen Z in this quarter, 75% of our premium cards, where millennials and women in the next strategic imperative was SME, we had probably the best SME acquisition year that we've ever had we talked about our ability to be in People's digital lives.
With 31% online spending growth over 2019, and we had 16% online spending growth just over last year and look at what we've done from a merchant perspective, we're at parity.
In the U S and we added over 7 million merchants.
Just last year internationally, and then look at the secular tailwind I think the pandemic has moved.
Online spending.
<unk> for three to five years, and we're getting more than our fair share and then look at our business. We're at 82% of the overall, our overall <unk> business from from 2019, now consumers doing really well in the fourth quarter, we were up 8% with the rest of the rest of it is below.
2019 levels and so we believe from a TD perspective, we've got more room to go.
When we look at our as we segment our card members.
Millennials are.
Loan it out we had over 50% spending for millennials in our Gen and Gen Z increase over both 2019 and 2020 and as we look at sort of our Gen X is up and our boomers or not and our boom has traditionally once the travel and have money and once we get.
From pandemic endemic here, they're going to start traveling again, Jeff talked about modest loan balances that will grow over time, which is the company made about re some reserve increases, but we're going to get back to where we were we look at international consumer International consumer tends to be a more traveling card member in that business.
<unk> is flat and large and global has not come back and I'll leave you with this on large and global people are skeptical about business travel because of all the remote workforce. In fact, I think business travel is going to be completely different and I think as you have more people in more remote locations. They may need to get together three four maybe.
Five times, a year to come to headquarters were to come to locations, where they never had it come to before.
And let's face it we all realize that there is nothing better than sitting in front of your customers and I just came back from an opportunity at the Amex golf tournament to sit in front of a lot of my customers. So.
When we look at the secular tailwind.
Thats why we believe it's not only doable, but sustainable as we move forward.
Thanks for taking my questions and apologize for packing so many in there.
Okay.
And our next question will come from Betsy <unk> with Morgan Stanley .
Hi, good morning.
Hi, good morning.
I just wanted to dig in a little bit more on some of the opportunities that you were discussing when I sit from my seat I'm wondering what type of penetration do you think you have in the U S.
Our millennial and Gen Z. The numbers you just quoted a very impressive but I'm wondering do you feel you are at 90% of that market or 10% give us a sense as to how youre thinking about that and in addition on the SME side, where you are the clear leader.
Where's the room for you to run it's Ed.
Increasing the product set I E. The revolving line of credit that you recently announced or is it more in acquiring new customers and really the question is what's the Tam and what percentage of that Tam do you think you have right now in the various customer sets. Thanks.
So let me start and Jeff can sort of jump in I look from a millennial perspective, I don't know exactly where we are but what I can tell you is we're not at the 90%.
It'd be closer to the 10% to 90.
But millennials and Gen Z. So I think theres, a lot of opportunity and a lot of a lot of runway and maybe an investor day, we'll try and we will try and give you some some guidance on that.
I'll do a little bit of work on that from an SME perspective look we are that's right. We are the clear leader from an SME perspective, and I think when you look at the opportunity set what we've said from an SME perspective is we want to be the total working capital provider and so you look at what we've done what we've done is we've gone out there and now we've created with the acquisition of <unk> with <unk>.
<unk>.
We have the checking account we have the debit card and checking accounts is important because that's where all the flows of money come in and go out from a card perspective, we've always been in great shape.
From a revolve perspective on the card we don't have the same share that we that we've had and so we will push a little bit more on that revolver, obviously on working capital loans and some of the other term loans will be pushing on as well. So we think when you put that together holistically, we have a lot of room for growth from an SME perspective.
Not only in the U S, but in international where we leverage our international corporate card business and our position from a fall.
Consumer perspective to go after it so we think both of those areas are still very very ripe.
To grow.
Our next question will come from Mihir Bhatia with Bank of America go ahead. Please.
Good morning, and thank you for taking my question.
Just wanted to ask maybe we can talk a little bit more about variable expenses, specifically what I'm wondering is just.
Got it actually seems to imply a little bit of operating leverage in that line item for next year, which.
Compared to this year and I'm wondering what is driving that maybe you can give a little bit more color on the internal lines within that three different line items in that.
Mike here.
I didn't get the very first part of your question I'm, sorry, I'm sorry.
42% of XIAFLEX.
But then the revenue is lower than 2021, right. So I was just trying to understand maybe a little bit fall, which line items the business development line.
Like what would be driving that yes, okay. Im sorry, so theres a few things to think about when you think about that 42% remember to start with we started giving you. This percentage because it was an easy way in a very volatile time during the pandemic to help people think about all three of these lines as you think about <unk>.
Just year I'd point out a number of our revenue lines are recovering more slowly we talked about net interest income.
Other fees and commissions and other revenues because a lot of that is travel related so in many ways because spend has come in come back more robustly, because we're seeing great engagement from our customers with both our reward programs and our many card member service.
<unk>.
<unk> engagement behaviors are causing those costs to come back more quickly than a 100% of the revenues are coming back so.
Really in many ways one of the reasons, we're very bullish about both 'twenty, two and 'twenty three revenue growth being above our long term aspiration is because you have this steady recovery.
Other revenues recover at the other thing I'd point out here is that back to Steve's comment on learnings from the pandemic and the investments we have made in our value propositions are clearly paying off when you look at our revenue growth when you look at our acquisition results.
When you look at our retention and so boy I would say it is a learning for us from the pandemic.
Investing as you see in that 42%.
Is the right thing to do to create a great platform for long term growth for the company.
Our next question will come from Bill Clark Hao-chi with Wolfe Research.
Thanks, Good morning, Steve and Jeff.
Good morning Bill.
So amex was one of the few financials, if not the only to not cut its dividend during the global financial crisis, Steve how important to you as sustainability of the dividend did that factor into your decision to increase it by 10%.
I guess, what do you view as an optimal level for your dividend payout.
Well, what I would say bill is.
The dividend is important to us it's important to many of our shareholders and the fact that we're raising it for the first time since 2019 as a sign that in our view, it's time to be on the offense again.
I feel confident about our growth all of that said, we have a long standing policy of having.
Payout that is around 20% to 25% of the dividend with the tremendous growth in earnings this year and what we expect next year in 'twenty two.
Falling a little bit behind that and so we're catching up really to that level, but that's what that's what shareholders should expect going forward. So the dividend will grow over time as our earnings grow, but youre not going to see it.
Grow incrementally as a payout percentage, but I think going back to the financial crisis Bill It was important to show stability.
And just the resilience of the company during that time.
And that was an important signal.
To our to our shareholders I believe in.
It just it showed our commitment to it so that's about it.
Our next question will come from Chris Donat with Piper Sandler. Please go ahead.
Yes.
Okay.
Gross.
Hey, guys can you hear me.
Now we can now.
Okay.
Yes.
Alright, guys.
The trouble with your line if you could please pick up your handset.
Check your mute future I'm.
I am sorry, we have lost Mr. Donuts line.
We'll go next to Moshe Orenbuch with credit Suisse.
Great. Thanks, I, just wanted to kind of focus a little bit on the cost side I mean, you did.
The revenue guidance very strong clearly.
Really $2 billion to $3 billion above.
Census expectations were for 2022.
Thanks.
The high end of EPS guidance is kind of where consensus is sort of implies I guess between credit and costs.
$3 billion more.
In there.
Is there a way to kind of think about that.
The categories are.
So that we can have a better idea of how that don't have that operating leverage post that.
Understood. Thanks.
Moshe.
I will admit you were fading in and out a little bit so I'm going to take a shot at what I think you just asked.
I think when you look at our 2020 to EPS guidance.
I actually the first one it could be at a point people back to the revenue guidance right. So we're all about growth and growing our revenues another 18% to 20% on top of the 30% growth that we just showed in the fourth quarter. We think is creating the kind of scaled platform that is the best platform for <unk>.
<unk> value in the long term for our shareholders.
Second point I would make when you think about 2020 to.
Earnings as I said at the beginning of my remarks, you had around $3 $5 billion of pre tax items in the 2021 earnings.
But I don't expect to repeat so $2 5 billion of credit reserve releases I think we're closer to a steady state position on that another $1 billion on mark to market gains on both our fintech portfolio and our global business travel joint venture and so we look at our 2022 earnings Guy.
<unk> and.
And see ourselves growing over that $3 5 billion wall, making the investments that Steve talked about and customers brand and colleagues to drive 18% to 20% revenue growth.
And we feel really good about that outcome and we think it creates a great platform for long term sustainable growth, yes, I mean look simplistically.
Take the $3 5 billion off the $10 in <unk>.
Just call it 650 call. It 60 70, so we see it going.
From that number to $920 to $9 65, and as we've always said, we thought we'd be at the top end of the range of our 2020.
Plan and the guidance that we've given use the top end of our range as the bottom end of our range. So we think it's from a from a pure operating perspective.
I think it's a lot of operating EPS.
In 2022, you guys can decide whether you believe that or not but the numbers that are numbers.
Well once again go back to the line of Chris Donat with Piper Sandler.
Please go ahead.
Hi can you hear me this time, we cast very clearly.
Okay. That's a good better thing just wanted to ask around discount rate if that factors in as one of the tailwind you expect going forward as we think about the mix of your your T&D businesses and the discount rates there and also with DNS and even online do you pick up any tailwind from expected mix shift in business.
With the recovery.
Probably probably not I mean, because goods and services are growing so dramatically.
Our traditional mix of business was 70 30 70.
Percent goods and services and 30% <unk>, we may wind up being at a steady state of 80 20, and so obviously as teeny does come back and we're at 82% of where we were in 2019.
That's a positive to <unk>.
Overall discount rate, but goods and services tends to be a little bit lower but look at the end of the day, we're driving discount revenue here.
Yes.
And that's what we're focused on and so we're very happy with the goods and services growth and particularly the online and what I would point out is not only is online growing but offline as well as well and.
Growing tremendously over over 'twenty over.
Over 20 over 2020.
But when you look at it over 2019, I mean, even offline retail for US is up over is up over 12%. So.
You've got a combination of online online retail up 31% over 19, and you got offline up 12%. So we feel we feel really good about how our card members are using our products.
We will go to the line of Bob Napoli for our next question with William Blair Go ahead.
Alright, Thank you and good morning, Hey, Bob.
Good morning, Steve Good morning, Jeff.
So one of your competitors large bank I guess targeted lower returns because of the need for tech investment.
And can you compete against I guess spin tax.
But what is your thought on the.
What kind of investment do you have built in how do you feel about the American Express.
Tech stock.
And the need to invest and I guess as it relates to maybe blockchain and crypto currency potential disruptors to payment rails and buy now pay later as a disruptor to credit cards.
Well, that's a lot Bob.
Alright.
I think.
And you and I've talked about this before look we've we've continued to invest in our technology stack over time and yes.
I used to run technology, many years ago, and we've been committed to.
Constantly refreshing, our tech stack and making those investments and this year is no other and it's not.
It's not any more than it's been in years past I mean from a tech development perspective, I would say were flattish as we think about it.
<unk> 2020 to up a little bit here or there and from a tech operations perspective, you keep taking advantages al and a reduced cost and then of course, you then pivot more money into cyber because that that's constantly where were you overall invest.
Look.
As far as buy now pay later.
And again I made these comments many many times I do not believe.
This is this is targeted at our customers look we have payer planet.
And pay it plan. It is is we believe in offering our customers the opportunity.
To be as flexible with their payments as as possible.
And it gives you the ability to pick your installments and paid over time and we've had some increasing usage here, but it's not a it's not a major driver of our of our growth and.
You look at the other types of buy now pay later the pain for the.
<unk> is the charge card is almost paying for it because by the time you pay your on average your charge card or your credit card in a non revolve basis, you could be at 45 days anyway. So.
When we've looked at sort of buy now pay later and that target audience. It tends to be lower FICO. It tends to be debit card users and it tends to be utilized potentially as an acquisition tool and thats just not how we play our game so.
I'm not I'm not at all concerned with buy now pay later I think some successful companies out there that are driving some revenue and.
And are driving.
A lot of volume through buy now pay later, but again, we look at it as an option with our.
I'll pay it plan it and the nice part about the planet is it's not at the point of sale. Because you can you can do it to any transaction. It doesn't just have to be at the point of sale, where not everybody has a buy now pay later feature so that as far as crypto currency goes.
Look we watch crypto currencies and you've heard you guys have heard me talk about this we think about the spectrum of digital currencies. We think about crypto, we think about stable coins, we think about.
The Central Bank.
Central Bank current digital currency and.
At this particular point in time, we view more crypto currency as a.
As a as an asset class I mean, you've just seen bitcoin go from $68000 of coin to $34000.
Currencies that you use in the payment space, that's a hard thing to to utilize that way so and as far as blockchain look we've got we've got investments in blockchain companies. We constantly look at blockchain and figure out are there are there use cases for us so.
And as far as stable coins.
In Ftes and things like that we're partnering with obviously, the NBA and top shop, and we will look at ways to get involved but as I've said.
Are we not going to offer a crypto card doesn't mean, we wouldn't use <unk> redemption option and I've said many times, it's a digital currency in itself. So.
So we keep our eye on it and keep our iron.
Buy now pay later in case that that tie changes, we keep our eye on crypto currency in case it becomes.
A more stable, but right.
Right now I don't see it as a as a immediate or medium term threat to our business.
Our next question will come from Aaron <unk> with Citi go ahead.
Thanks Jos.
If you could talk a little bit about the your capital return plans for for next year obviously.
Nice increase in the dividend, but you are at your CET, one target or within the range now at 10, 5%.
Where do you think buybacks go from here, particularly since Youre starting to grow your your.
Receivable balances by a decent amount.
Well, we're pretty committed to staying within that 10% to 11% range on the CET one ratio when I talked earlier about the dividend will go up steadily as our earnings go up the thing to keep in mind, though is.
We are pretty uniquely also generate returns on equity.
In recent years in excess of 30%, so we produce a tremendous amount of.
Of capital each year far more than we need to support the growth in our various spend centric business model and the balance sheet that results from that.
So youll continue to see.
A steady level of share repurchase from us each quarter, consistent with that kind of earnings generation and that kind of Roe.
And staying within our 10% to 11% range.
Clearly, though the big catch up has been in the last two quarters, where you saw but what I will call above trend levels of share repurchase to get us right back down to that target range.
We'll go next to Rick Shane with Jpmorgan go ahead.
Thanks, guys for taking my questions. This morning.
One of the things that's come up repeatedly is the strength of the millennial Gen Z growth.
When you look towards your revenue.
Growth guidance.
Much is embedded related to the sort of lifecycle of a younger consumer and the growth that you would expect there how does that play out over time.
Well I think when you see us very uncharacteristically Rick talking about.
Long term aspirations in 'twenty, four and beyond a key part of that aspiration is looking at the demographics of who were bringing in and thinking about the lifetime value of a card right. We are a business with extremely high retention rates.
Relative to almost any other business you could think about.
And when we acquire customers we are thinking about the lifetime value of those customers. That's one of the things that contribute to the <unk>.
Steve started the call off with when we think about the longer term growth prospects of the demographic that we are increasingly bringing into the company.
We will go to the line of Mark Devries with Barclays go ahead.
Yes, thanks, and this may be somewhat related.
Question to what Rick just asked.
As I look at the 2024 kind of aspirational growth plan it.
It looks like Youre almost back to kind of a pre financial crisis growth algorithm with a pretty healthy spread between revenue growth and EPS growth as opposed to like.
The years prior to the pandemic wherever there is a much tighter spread is that.
Fair observation. So what's different are you expecting more operating leverages as higher return business youre, bringing on kind of what's behind that.
Well, maybe I'll start Stephen.
First Mark I think I would remind everyone are what we at the time referred to as our financial growth algorithm pre pandemic, which we very successfully executed on for 10 straight quarters until the pandemic interrupted.
Revenue growth in the 8% to 10% range and double digit EPS growth. So.
We have much bolder ambitions now to be in excess of 10% of the revenue growth side.
Mid <unk>.
This is AT&T we've lost your voice line, if you could check your mute feature.
We've lost the host connection if you could please check your mute feature please.
Ladies and gentlemen, please standby.
We have lost the connection.
You are back on to your heart.
Yes.
Are we back Alan Yes, you are connected.
We have no idea why we lost the connection which is a little unnerving head I just started Alan.
You had gotten into a little bit I'm not sure exactly how far you. Once you start again, okay. So sorry so.
Apologize everyone not quite sure where the tech problem is we're sitting in our office.
Tower in New York.
So pre pandemic, we were at 8% to 10% revenue growth double digit EPS growth like Clockwork, we executed on that for 10 straight quarters until the pandemic interrupted.
We see ourselves having a much bolder aspiration now in excess of 10% revenue growth mid teens EPS growth and that's going to come after a 22% and 23 at higher levels than that in terms of revenue growth and that kind of revenue growth gives us a tremendous platform for scale for relevant.
And for getting steady leverage on the marketing line and on the Opex line, because boy you don't need to grow marketing and Opex and anywhere near those kind of rates. So that's the math, maybe you want to comment yes, no I would just say look we have been on you mentioned pre financial crisis, and yes pre financial crisis. There were there were years.
When we were in excess of a 10% revenue growth and then post financial crisis.
Game changed post financial crisis, not only from a competitive perspective, but from a regulatory perspective, and then we're more mid.
Mid single digits.
Sort of revenue growth, but the other thing I'd say is we're much larger company right now as well and so when you start to think about 2024, and you think about revenue growth youre looking at excess of $6 billion per year.
In revenue growth so.
I think when you start to look at those numbers and put those in perspective in contrast, those two.
Pre and post financial crisis. They are they are quite different but as I said we have.
All the faith in our in our in our strategy.
Look in a highly competitive.
Environment, but as you think about what's moving us as I started this call with whats moving US right now to even higher revenue growth into next into next two years is the fact that we've got some catch up to do with our with our with our core business and in the areas that I mentioned in terms of CNA and loan growth.
In large and global.
And certainly in international.
And then as we move and get to a more steady state that's where the again just the reliance of the strategy that we've implemented.
And as Rick just mentioned and Jeff answered the question in terms of the lifetime value and the focus on millennials.
N Gen Z in whatever the next generation is going to be after this.
That's going to be a key to our strategy as we expand the universe of card members from a premium perspective so.
Youll see how it all plays out but we are very very confident.
Our next question will come from Lisa Ellis with Moffett Nathanson.
Terrific. Thanks for squeezing me in.
I had a question about the investment plan support thing that 2020 for outlook and beyond can you talk about.
The role of M&A tuck in M&A, or I guess I'm thinking more broadly about adjacent.
Areas that you're focused on investing in as you build towards that to kind of Q3 year out plan and think about things like cabbage and Rodney like you've done in the past, yes, I think at least.
The way to think about this is look there is no.
There is no singular investment target that we're looking at but I think you've hit the nail on the head we look at Adjacencies that make sense, then as we think about the strategies for the product I mean, as we as we move into.
As we moved into a broader definition.
How we were going to serve Smes the cabbage platform made all the sense in the World look you had three choices. There you could try to build it you could buy it or you could try and partner with them and so.
It was an opportune time, and we were able to buy it and that's how we're re platforming our our SME base. When you think about what we've done from a consumer perspective, and resi resi is a good example of that.
Is that it.
As an extension of our of our overall traveling this of the of the product and an investment in resi, giving access to.
Our card members to to dining and it's also a great acquisition tool for customers because <unk> is not an amex only product. It has some amex only offers for our customers. So as we continue to build out the strategy, we will make those determinations, whether it makes sense for us to build it ourselves partner or buy it and we will talk those things in.
If and when they when they make sense and if the if the overall prices right. So that's how we'll think about it but.
Just I just bring you back to the four strategic imperatives that we have which is continuing to be the best premium card provider for consumer looking at being that working capital provider for SME, becoming even more digital to our customers and adding more and more merchants and as things makes sense along that strategic continue.
We will we will.
Act if appropriate.
Our next question will come from Don <unk> with Wells Fargo.
Hey, good morning, good to see teens EPS.
I don't know can you guys hear me.
Yes, yes.
Okay, alright, good to see the mid teens growth 24, and beyond I mean, I think we all sort of think of low double digits.
I guess, Steve could you dig in a little bit on this.
January and December Omicron.
Slowdown and maybe just talk about did you see what kind of dip and has it stabilized just to give us some comfort on work.
For Us I think wanted to most leading the biggest leading indicator for us of what's going on is how people want to travel right because.
As we know people have shopped online we haven't seen we haven't seen much of a slowdown from our goods and services perspective, what really is the delineating factor is our people out and about and we talked about the fourth quarter as being 24% up from a travel bookings perspective. However, the last few weeks of December we did.
See a slowdown.
In terms of some of our travel bookings as people got.
And rightfully so a little broad.
Nervous, but the first two weeks in January our travel bookings are up 44% over 2019. So what that tells me is.
People are ready to get out and get out and about again, and we'll see what omicron peaks and when we get the next variant, but I think society is learning how to deal with this and as Ed Bastian said on his earnings call I think will ultimately move from pandemic endemic and we'll learn how to deal with this so we really haven't seen a slowdown in our <unk>.
Buildings at all in fact, we've seen an acceleration in travel bookings so that gives us.
A lot of.
A lot of confidence the other thing I would say, though is that remember from a consumer perspective, we're back I mean from a <unk> perspective, we were at we were up 8% over 2019 from a consumer perspective in the fourth quarter and we anticipate that moving further north.
Our final question will come from Sanjay <unk> with K B W.
Thanks, Good morning.
Yes.
Aspirational.
Guidance.
Our long term aspirational question again, but if we think about sort of the long term revenue algorithm right is there anything that youre seeing inside your customer base, whether it would be higher unit economics on the new accounts or evolving mix shift from different businesses thats going to drive that above average.
<unk> growth relative to history, I guess it would be good and maybe this is an investor day. Thanks.
It would be good to just understand sort of what the key drivers will be as we look out whether it would be the baseline for economic growth versus share shift versus the different segments right like need to be.
Et cetera.
I don't know if Thats an open ended question, but I'm just curious.
So in response to it alright, you're helping us a little bit what are outlined for investor day. Thank you.
But look I think one of the things that people don't take into account when theyre thinking about future revenue growth.
Is retention of card members.
One of the big drivers of our growth has been the fact that Gee, it's a lot easier when you can keep onto your card members, who are with you and her spending and so forth and retention of card members does that is that an all time high the other thing that's driving this is obviously to ship.
Goods and services perspective, I mean look we grew we had more billings in 2021 than we had in the history of the company and we're at 82% of our overall <unk> billings in 2019 and theoretically we're known as its unique product right. So I think we'll talk about this but I think there are a number.
If things I think it is retention.
As Jeff mentioned before in response to Rick's question, the lifetime value of card members, obviously getting card members earlier in their in their life youre going to keep them longer, especially if you have the retention rates that we have will continue from an SME perspective to evolve our product set and therefore evolve our revenues.
We will continue to bring loan balances back too.
We were above average industry growth from our loan balances perspective, and we think we'll get back there. So look we'll give you some more insight on that but I think those sort of.
My high level perspective, those are the things that give us all the confidence in the world.
With that we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express the IR team will be available for any follow up questions Alan back to you.
Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at IR Dot American Express Dot com shortly after the call.
You can also access the digital replay of the call at 8662071041 or area code four zero to 90 700 847. The access code is 41175 to zero. After one P. M. Eastern time today January two.
Fifth through Midnight February 1st.
That will conclude our conference call for today. Thank you for your participation you may now disconnect.
Hi.