Q2 2022 American Express Co Earnings Call
Initiatives and injecting new value into a premium consumer and business products the benefits that were relevant for the times.
We then ramped up investments early in the recovery to rebuild our momentum and grow our customer base refreshing our premium products. The series of new benefits that enhanced our generational relevance and we accelerated our acquisition engine.
These decisions laid the foundation for the strength in customer retention engagement and acquisitions that you've seen over the past year and our results today.
Other key factors driving our performance include the many competitive advantages that we have that differentiate us as well as several structural shifts some near term recovery tailwind, which you remember we discussed at our Investor day.
A critical competitive advantages are global premium customer base, which is at scale unrivaled in the industry with millions of high spending super Prime loyal consumer and business customers across generations and geographies.
Accordingly, millennials and Gen Z consumers are large part of our existing customer base and our fastest growing age cohort, making up 60% of all new consumer card members, we are acquiring and around 75% of new U S consumer platinum and gold card members.
Our new customers have excellent credit profiles are highly engaged and a premium benefits that come with American express membership and are spending more from the start of their relationship with us in previous newcomers, giving us a long runway for growth.
In fact spending by this age group grew 48% in the second quarter significantly outpacing other generations.
Our momentum is also being aided by several structural shifts, which we believe give us significant opportunities.
Growth across all lines of business over the longer term.
These include the growth of the premium consumer card space around around the world the ongoing increase in online commerce and digital engagement among consumers.
<unk> pace of small business creation, and the acceleration of Digitization digitizing of commercial payments.
Finally in the near term, we are benefiting from recovery tailwind in our businesses outside the U S. In the large and global corporate space and in travel and entertainment and.
Travel rebound in particular has been faster and stronger than anyone expected total G&A spending exceeded pre pandemic levels in April for the first time. It was at 108% of 2019 levels for the quarter led by strong growth in global consumer and SME spending and a significant uptick in large and global corporate travel.
And we don't see demand and a teeny categories declining significantly anytime soon based on the strength of future bookings coming through our consumer travel agency and the trends are partners in the travel industry like Delta are experiencing particularly in the premium space.
We are wary of the uncertainties in the current economic environment and the impact it's having on our business historically low unemployment rate is a positive factor as it is helping to drive our strong credit metrics and we continue to see no significant signs of stress in our consumer base.
Inflation is a bit of a mixed bag, it's a modest contributor to our strong growth in volumes, but inflation when combined with low unemployment also puts pressure on operating costs. For example, like everyone else, we're seeing intense competition for the best talent, but because our colleagues are a key driver of our success will continue to invest in talent, which is having an impact on our operating expenses.
Looking forward as Ive emphasized many times before we run the company for the long term and our investment strategy is grounded in this principle as we sit here today, we have an abundance of great opportunities and we will continue to make our decisions with a longer term view like we did during the pandemic.
That means we will continue to invest at high levels in those areas that will drive sustainable growth, including our brand value proposition customers colleagues technology and coverage we remain confident.
The successful execution of this strategy will position us well as we seek to achieve our long term growth plan aspirations of revenue growth in excess of 10% and mid teens EPS growth in 2024 and beyond.
Thank you and I'll now turn it over to Jeff.
Well, thank you, Steve and good morning, everyone. Good to be here to talk about our second quarter results, which reflect another strong quarter and great progress against our multiyear growth plan.
Starting with our summary financials on slide two most importantly, our second quarter revenues were $13 4 million.
$13 4 billion up 33% on an FX adjusted basis.
<unk> sequentially from last quarter's already strong 31% year over year growth rates.
Our reported second quarter net income was $2 billion with earnings per share $2 57.
Now as I said last quarter, given that year over year comparisons of net income have been challenging due to the volatility that the pandemic caused in credit reserve adjustments.
We are including pretax pre provision income as a supplemental disclosure again this quarter, which we believe gives you additional insight into the trends of our underlying earnings on this basis second quarter pretax pre provision income was $3 billion up 27% versus the same time period.
Last year.
So now let's get into a more detailed look at our results beginning with volumes.
On slide three you can see the continued momentum in spending from our strong customer base that Steve noted earlier.
And total network volumes were up around 30% year over year on an FX adjusted basis in the second quarter.
We feel really good about both our year over year growth as well as our sequential growth.
The second quarter saw us achieving our highest ever level of quarterly build business and if you were to compare to 2019, the first quarter, 18%, while the second quarter growth rate accelerated even further to 28%.
Importantly, our spending volumes strengthened as we went through the quarter with the month of June also reaching a new monthly record high and as we sit here today. This momentum has continued into early July .
Now I would point out that when you think about a year about year over year growth rates volumes in 2021, where of course in a steep phase of recovery as the year progressed. So I do expect that our year over year growth rates will moderate as we progress through the rest of 2022.
Our spending metrics are being driven by both a sustained growth in goods and services spending and by an acceleration in <unk> recovery in the second quarter.
Starting first with goods and services spending on slide four we saw year over year growth of 18% in the second quarter.
We are now multiple quarters into seeing the effects of this structural shift in online commerce spending patterns is accelerated by the pandemic with our growth rates remaining steady specifically online in card not present spending grew 15% in the second quarter.
In contrast, total T&D spending as you see on slide five showed an acceleration of interest recovery this quarter, even more than we and many others would have expected.
Reaching 108% 2019 levels.
High demand for travel drove a steep recovery across all customer types.
This strength in both goods and services and T&D spending is also evident as we break spending trends down across our consumer and commercial businesses with a few other key points, but I would suggest you take away.
First beginning on slide six.
Millennial and Gen Z customers continue to drive our highest global consumer billed business growth with their spending of 48% year over year.
Also call out that this quarter all other age cohorts have now reached to pre pandemic levels of <unk> spending, including baby boomers, who had been slower to recover.
In our commercial business on slide seven spending from our small and medium sized enterprise clients continues to drive our overall growth with spending up 25% year over year, while a smaller part of our business. It is worth noting the significant acceleration in growth of 58% of the large and global corporate.
Customers significantly above last quarter's growth rate.
This is a sign of a more meaningful business travel recovery.
So overall, we are pleased that our strength in spending volumes has exceeded our original expectations for the year.
And again this quarter the majority of our high level of growth was driven by the number of transactions flowing through our network.
With some modest additional impact from inflation.
This positions us well for our long term growth aspirations.
Moving on now to receivable and loan balances on slide eight we saw good sequential growth in our loan balances, which are now well above the pandemic levels this quarter.
The interest bearing portion of our loan balances also continues to consistently increase quarter over quarter, but remains a bit below 2019 levels as paydown rates have remained elevated.
As you then turn to credit and provision on slides nine through 11, the high credit quality of our customer base continues to show through in our extremely strong credit performance.
Card member loans and receivables write off in occupancy rates remained well below pre pandemic levels and though they did continue to tick up slightly overall this quarter as we expected.
Trending a bit better than our expectations when we started the year.
Turning then to the accounting for this credit performance on slide 10.
As you know there are a couple of key drivers of provision expense.
Actual credit performance, which as we just discussed is extremely strong.
And second changes in credit reserves under the seasonal methodology.
We built a small amount of reserves this quarter as our loan balances grew in the macroeconomic outlook that we flowed through our seasonal models got slightly worse relative to the outlook back in Q1.
Both partially offset by improved portfolio quality.
This reserve build combined with our low net write offs drove $410 million of provision expense for the second quarter.
As you see on slide 11, we ended the second quarter with $3 2 billion of reserves, representing three 1% of our loan balances and zero, 2% of our card member receivable balances respectively.
This remains well below the reserve levels, we had pre pandemic.
Going forward, we continue to expect delinquency and loss rates to move up slowly over time.
But you remain well below pre pandemic levels this year.
I do expect to end the year with a higher level of reserves on our balance sheet than where we ended this quarter given our expected loan growth.
But the overall range and timing of reserve adjustments will be heavily influenced by how the macroeconomic outlook evolves between now and the end of the year.
Moving next to revenue on Slide 12, total revenues were up 31% year over year in the second quarter or 33% on an FX adjusted basis as we continue to see a stronger U S dollar relative to most of the major currencies in which we operate.
Overall these results were above our original expectations.
Before I get into more details about our largest revenue drivers in the next few slides I would note that the service fees and other revenue was up sharply 79% growth year over year.
Largely driven by the uptick in travel related revenues that accelerated this quarter with cross border spend in particular, surpassing pre pandemic levels.
Our largest revenue line discount revenue grew 32% year over year in Q2 on an FX adjusted basis as you can see on slide 13, driven by both our sustained growth in goods and services spending and the accelerated <unk> recovery that you saw in our spending trends.
Net card fee revenues were up 19% year over year in the second quarter on an FX adjusted basis with growth continuing to accelerate as you can see on slide 14.
Largely driven by the continued attractiveness to both prospects and existing customers of our <unk> products as a result of the investments we've made in our premium value propositions.
This quarter, we acquired $3 2 million new cars with acquisitions of U S. Consumer platinum card members again, reaching a record high and increasing 20% above last quarter's record level.
Demonstrating the great demand, we're seeing especially for our premium fee based products.
Moving on to net interest income on slide 15, you can see that it was up 31% year over year on an FX suggested basis accelerating above last quarter's growth rate due to the continued recovery of our revolving loan balances looking.
Looking forward.
Well I would expect our loan balances to continue to recover at higher growth rates.
The rising rate environment will likely cause our net interest income growth rate to slow given our sizable noninterest bearing charge balances.
To sum up on revenues on slide 16, we're seeing continued strong results in sustained momentum across the board.
So looking forward, we now expect to see revenue growth of 23% to 25% for the full year of 2022.
So the revenue momentum we just discussed has been driven by the investments we've made in our brand value propositions customers colleagues technology and coverage and those investments show up across the expense lines you see on slide 17.
Starting with variable customer engagement expenses. These costs came in as expected at 42% of total revenues for the quarter and are tracking with our expectations for variable customer engagement costs to run at around 42% of total revenues on a full year basis.
On the marketing line, we invested $1 5 billion in the second quarter, we feel really good about the strong demand for new card acquisitions as we showed on slide 14 more importantly.
We feel good about the spend credit and revenue profiles of the customers, we're bringing in to American Express membership.
Which continued to look strong relative to what we saw pre pandemic.
I would now expect to spend a little over $5 billion on marketing in 2022.
Moving to the bottom of slide 17 brings us to operating expenses, which were $3 3 billion in the second quarter.
And some quarterly volatility in this number due to the very the timing of certain accruals and entries. This quarter. For example, we see the impact of the prior year, including a sizable benefit from net mark to market gains in our Amex ventures strategic investment portfolio.
As I said last quarter.
And as Steve discussed earlier inflation, while driving some modest positive impact on volumes is also putting pressure on our operating expenses, particularly in our compensation costs.
Taking everything into account, we now expect our full year operating expenses to be around $13 billion as we invest in our talented colleague base technology and other key underpinnings of our growth.
Given our tremendously high levels of revenue growth.
Turning next to capital on Slide 18, we returned $1 billion of capital to our shareholders in the second quarter, including common stock repurchases of $611 million and $394 million in common stock dividends on the back of strong earnings generation.
Our CET one ratio was 10, 3% at the end of the second quarter within our target range of 10% to 11%.
And to continue to return to shareholders the excess capital, we generate all supporting our balance sheet growth.
Given the concerns about the macro economy and the market is worth noting that in the Fed's CCAR stress test results released last month American Express was again one of the few firms that remained cumulatively profitable under the feds macroeconomic stress scenario and we had the highest profit margin as a.
<unk> of assets of any participating banks.
That brings me to our growth plan in 2022 guidance on slide nine.
Our performance year to date, and our full year guidance reinforce several points that Steve and I have now both discussed first and most importantly, we clearly have momentum across all of the areas is critical for us to drive sustained high levels of revenue growth, including customer acquisition engagement and retention evidenced by our.
Our strong Q2 results inflate.
Inflation is additionally, providing some modest benefit to our revenues.
The combination of all these things led us to increase our expectations for full year revenue growth of 23% to 25% up from our original range of 18% to 20%.
For now, though our EPS guidance remains.
Change from between $9 25, and $9 65.
Let me walk you through our thinking here.
As I talked about earlier, we feel really good about the strong results generated by our marketing investments this year and that's why we now expect to spend a little over $5 billion for the full year modestly.
Modestly above our original expectations.
Both Steve and I also talked about the fact that there are some pressures on our operating expenses, particularly around compensation and partially fueled by inflation.
Therefore, we now expect our operating expenses to be around $13 billion.
Here.
Lastly, and most importantly, as we think about our EPS this year.
As I talked about in the credit section, while our credit performance and metrics remained extremely healthy.
Can't predict how the macroeconomic outlook will evolve.
That makes it difficult sitting here today to predict a precise range of outcomes for any potential seasonal reserve adjustments for the balance of the year.
That said should the macroeconomic outlook not change meaningfully between now and the end of the year.
And therefore, not have a large impact on credit reserves in the balance of the year.
We expect to be at or even a bit above the high end of our EPS guidance range.
In any environment, we remain committed to executing against our growth plan in running the company with a focus on achieving our aspiration of delivering revenue growth in excess of 10% and mid teens EPS growth on a sustainable basis in 2024 and beyond.
With that I'll turn the call back over to Carrie to open up the call for your questions.
Thanks Scott.
We open up the lines for Q&A I will ask the queue to please limit yourself to just one question. Thank.
Thank you for your cooperation and with that the operator will now open up the lines for questions operator.
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Paul for the first question.
Our first question comes from Ryan Nash with Goldman Sachs. Please go ahead.
Okay.
Hey, good morning, everyone.
Right.
Maybe just to start on revenue growth, Steve. So, it's obviously coming in much better than expected and you're choosing to invest more to propel future growth.
So I was just hoping maybe you could just talk a little bit about the additional investments that youre, making across the company whether its.
In opex or in card member engagements how much of this is offensive.
To drive revenue growth versus defensive and then given the acceleration of investments that we're seeing through 'twenty two could this position us for better revenue growth in the intermediate timeframe. Thanks.
So.
I think everything that we're doing here is as offensive I mean, you could you could argue that raise.
Raising compensation is.
But I think you're going to you've seen compensation being raised across so if I if I break out the categories, you're going to see Opex up and you see an opex up for two reasons number one.
We are investing a little bit more.
From an operating perspective, but that investment the main investments from an operating expense perspective is.
You can't grow your billings, 30%.
And with the majority of those billings being grown by 30% by more transactions without having more people.
To be able to serve your customers to be able to engage with them from a travel perspective, and you have to remember.
One of the huge differentiating factors that we have in our business model is our ability to serve our customers when and where they need to be served and as you get more and more transactions as we get more and more customers. You do have a step function increase in so a lot of our operating expense growth has been done.
So the addition of people.
Which is not may be a popular topic right now that people are talking about but we're adding people we're not subtracting people from our business and we're adding people to make sure that we can continue the level of service that we had and I don't mind doing that especially in a in a growth environment, which is what we're expecting your outlook Youre also seeing wage increase.
And you have to pay more to keep your best talent and so we will do that as short decided not to do that and we will continue to do that.
From a marketing perspective.
Yes, I've been doing this for a number of years now and one of the things that you hear US say is we have lots and lots of good investment opportunities and collect those investment opportunities go by the board because we thought we might have spent $5 billion, but maybe it'll be five points or whatever.
That's shortsighted, because we're running the company for the longer term, so I would say that.
The investments that we're making additional investments in technology are truly all.
All longer all thinking about the long term here as.
As far as revenue goes for next year look we're building up momentum, but I think when we came out and said we're going to grow 18% to 20%. This year there was probably some skepticism.
And now we're coming out and saying we're going to go 23% to 25, which is going to put the level of revenue at the end of this year, obviously higher than what we thought we have and to get us to 2024 at 10% plus revenue growth on a sustainable basis, which means in 2023, we'll certainly.
10%.
That number will actually be I don't know sitting here right now I don't know, but I can tell you it'll be on our growth trajectory and as long as we have good revenue opportunities and as long as we can continue to grow this business.
We'll continue to invest.
And Thats, where we are and as Jeff said.
We've decided not to and I think it's really important we decided not to raise our earnings or EPS guidance because of the uncertainty would see so which quite honestly, we don't have a lot of control over and so for us to sit here today and say Hey look let's just raised it to then come back in the third quarter to fourth quarter, and say Hey, we had at <unk>.
Wrap it it's just it's full hearted, but the revenue it's what we see and so when we're asked questions about what do you think about the economy and you see a slowdown.
If I was thinking that was a slowdown in the next couple of quarters I wouldn't be sitting here raising revenue to 23% to 5%. So.
That's how I think about.
Thank you. The next question is coming from Sanjay stock Ronnie of K BW. Please go ahead.
Thanks, Good morning.
<unk> was a big driver of the upside and I think Jeff you mentioned, there's been further strength in July which makes sense given we're moving into the heart of the summer months.
Are you guys concerned this is sort of a pull forward and you see a slowdown thereafter, and maybe that ties into what we saw in corporate <unk> because that also moved up quite a bit where do you think the new normal shakes out.
Alright. Thanks.
So if you look at where we are right now and yet we're at a rate of 108% growth over 2019.
And.
That's not really a big number when you think about it.
When you think about 8% growth over 2019 from a <unk> perspective, and you think about <unk>.
The airline prices you think about somebody inflation built in I would say it has more room to run on CNA and when you disaggregate sort of <unk> and you look at it and you see that the consumer is running.
So the 38% above and you've got international consumer running only 8% above and you've got SME running probably 8% above in.
Corporate travel is only 60% of it was in 2019.
I wouldn't call out a pull forward and then when I look at my bookings my future bookings in my consumer business there is strong.
And then when you get then you sort of disaggregate into go below those numbers and you look and you say, okay, what's really driving it and.
And you see tremendous growth right, we're seeing a tremendous drilling 48% growth in restaurant lodging is huge airline is way up but lodging and airlines are still below 2019 levels in aggregate.
And the airline industry is probably only about $85, 90% of their capacity and.
They have some staffing issues and what have you and theres sort of casting. So I don't think this is a pull forward at all I think is a huge pent up demand, obviously to get out and travel and see the world or see anybody at this particular point in time.
But no I'm not really concerned about a pullback because I don't think we've gotten to a normal level yet.
I really don't believe we've gotten to a normal level of <unk>. So lets see 90% year over year growth rates now, but I look at absolute aggregate numbers and I can't get too focused on just the growth rates, we're not at a normal level of <unk> yet in our business.
Thank you. The next question is coming from Betsy <unk> of Morgan Stanley . Please go ahead.
Hi, good morning.
Yes, it's really great great results here.
Wanted to dig in a little bit on how youre thinking about the loan growth on the SME side I know that's been accelerating here and just give us a sense as to where pockets of opportunity are.
And how you would flex if there was a slowdown thanks.
Look.
Our stated goal for our SME business is b to working capital providers for small businesses and so I.
I think that what we're trying to do is to be able to provide.
Liquidity to them using cards, we've got some short term working capital loans, we've got some shorter.
Short term term loans and.
And they're taking advantage of it but I'll send you back to the to the pandemic.
<unk>.
When you look at our small business base I think everybody was really concerned about how stress. This was because we have stressed this could be because of what the perception is the makeup of small businesses and I've said this over and over again when people think about small businesses think about restaurants, and I think about small REIT.
Dale.
On main street, and it's much more than that and so I think that and you saw how we performed.
Our credit metrics performed brilliantly through the pandemic.
And we are we've always grown in the last few years a little bit.
The pandemic, we've always grown faster than the market.
We have a very low share of our small businesses lending volume relative to their spending volume I mean, we probably have over 40% of your spending volume but.
40% of the spending on what we have less and maybe maybe 20% of the land. So there is opportunity and we will go after this opportunity the same way. We go after everything else in a very measured analytical and risk adjusted way and so we're not trying to grow <unk>.
<unk>, we are just providing our customers what they need having said that I think you've seen our ability to pivot.
And if need be we will pivot again, but what I do really love about our small business base not only that it continues to grow but it is so diverse across so many different types of industries.
And that's really really really important.
Thank you. Our next question is coming from Bob Napoli of William Blair. Please go ahead.
Yes. Thank you good morning.
Also.
Congratulations on strong numbers are really great to see.
I guess, maybe a question on network coverage one of your key areas of focus and incremental investment in may.
Or maybe.
Any update on how you're performing versus your plan on network expansion.
Kind of now obviously international teams like where you have the most opportunity from a network expansion.
Thoughts on.
Any metrics you can give on international and your thoughts on where your coverage should be internationally over the long term.
Yes look I mean, we.
From a U S perspective, we continue to remain at parity coverage and as virtual parity coverage and as we said it doesn't mean, you're not going to run into somebody that doesn't accept a card now and again, but usually it's when we do that we're able to sign them up because it's sort of.
Old old news in terms of what the rates are and how we.
And so forth so I am not really.
I should say I'm not concerned about the U S, but I like where we are in the U S and I like our approach to the U S from International I think we've been really really really clear we've been focusing on.
Priority cities and continuing to drive those numbers higher and those continue to do well, we've probably signed well over 3 million merchants.
This year.
Which is I think we are on pace to sign as many as we did last year from an international perspective, and we will continue to provide information not on a quarterly basis, but on a on a as needed basis to show you that the progress that we're making but we're really pleased with the progress that we're making.
And our priority citizen and that doesn't mean, we're not we're not focused on signing every merchant that doesn't accept a card we do but we think it's more important to sign those merchants where card members actually are.
And that's what our priority cities and the priority countries or so are so important for us and we feel really good about it and you only have to look at the international spending to say is it is it really working and when you look at.
Our international.
Spending this year, it's up higher than our consumer spending year over year year over year for this quarter. So it's a big driver for growth for us.
Thank you. The next question is coming from Mark Devries of Barclays. Please go ahead.
Thanks.
Had a question for Steve about the 48% growth in millennial and Gen Z.
I assume it's normal for the younger generations to have stronger growth just as a combination of what I assume are kind of stronger new account acquisitions and also just the ramping of spend as they age and their incomes grow can.
Can you give us a sense of.
What the breakdown is in that 48% between new account acquisition.
And then actual organic spend on an individual account basis.
I know you indicated that they are spending more than previous nukes.
Newcomers, but any sense of kind of dimensionalize that how that compares.
And then just finally on.
Comparing across.
The different cohorts.
How what's your market share is.
For these newer cohorts compared to Gen X and boomers a couple points in that range.
Yes, so we don't really get into all of that either in our release or top I, but let me give you a couple of a couple of points.
When we look at when we look at sort of how we're getting card member spending we really look at share of wallet share.
Share of wallet is really important for us.
From millennials.
Gen Z is we're getting a higher share of their wallets off the bat.
It's key because what happens is.
With a lot of our boomers, and so forth and especially our boomers.
They will use to an American express that was accepted in a limited universe. Our Gen Z and millennials are used to and American Express Thats really accepted everywhere.
And so we're able to penetrate their wallets more.
Right out of the gate because number one.
Theyre more card Theyre more card savvy and they tend to use no cash.
And theyre more value proposition savvy and they tend to figure out.
How to utilize the acquired and the best way in the best way for them and so we're getting a higher percentage of their wallet as they grow as their wallets grow as they progress through life.
Our aim is to continue to keep that wallet share.
And.
That's a big deal plus as you acquire Gen Z and millennials they tend to have a longer runway.
For tenure with the card product as far as the 48% growth in breaking it out sort of I mean really what youre asking for is same store sales versus versus new store new store sales I don't I don't really have that.
At the tip of my fingertips, Yes, we don't disclose the exact numbers are but.
But we do pull it apart just thank you described and we certainly have made the point that a disproportionate share of our new account acquisitions are going to that millennial and Gen Z app.
Demographic.
But then when you break out just to you Steve spray is the same store sales. It is also the fastest growing demographic on a same store sales basis. So both.
Tribute both the same store sales effect and the fact that they are disproportionate in our new customers.
Thank you. The next question is coming from Dominic Gabriel with Oppenheimer. Please go ahead.
Hey, great. Thank you so much obviously youre reporting incredibly strong recovery spending numbers.
If you just think about the spending cycle and inflation boosting nominal PCE versus real PCE.
How should we think about the effects on your high end consumer base versus the average U S. Consumer in terms of their susceptibility to his spending slowdown.
And perhaps why could this customer base that you have act differently versus the average consumer in the next spending cycle and I'm just talking about.
Total spending if you if that's if that works. Thanks, so much.
Well I think the simple answer is they have more money.
But.
When you when you look at.
Sort of what's going on in the economy and the stock market going up and down we have we've never really been tied to that I mean I've been here for parameter right 35 years, or so and I've never seen a correlation between that.
What I have seen a correlation between us.
Sort of unemployment and people, losing their jobs and not being able to pay their bills and so.
Yes.
That's potentially an issue down the road, but we.
We're not we're in a very crazy sort of environment and Jeff Jeff called this out in his own in his own remarks I mean.
No.
We've got high inflation and low unemployment and it's actually hard to hire people right now and so yes, youre seeing youre seeing some lay offs in some companies talking about slowing down your hiring and things like that but it's not broad based and it is not broad scale at this particular point in time.
So I think.
As far as I look at this this.
The cohort that we have which is.
A small segment right of.
Of the U S population.
But a very powerful segment of the U S population you would have to see.
A huge credit crunch.
Driven by unemployment I think for this for this cohort to be hit the other thing I would say is.
When we pull apart our numbers.
The spending is not inflation driven.
And thats not to say it is not inflation in these numbers, but you have to remember that coming out at the end of last year. When no. One wants to talk about it we had inflation in those numbers last year. So whether you look at eight or 9% showed a spending inflation out there in the environment. It is not an 8% eight or 9%.
<unk> benefit to our business because you do have a grow over but the most important thing for US is we're seeing an increase in transactions and thats whats really driving our growth right. Now is an increase in overall transactions in our business and that's.
That's an important indicator for us we look at not only transactions, but transaction size and then we look at that transaction size, a little bit on a normalized basis.
As you take the effects of inflation now.
We've got real growth when you do that.
Only thing I'd add is that we have said consistently a modest level of inflation and I would still use the word modest.
Where we are absent a spike in unemployment like Steve said is generally.
Net a positive thing for our business helps revenues a little bit that puts a little pressure on costs, but it nets to a positive and then as long as the labor market stays where it is why we feel pretty good about the guidance. We've given you for the rest of the year.
Thank you. The next question is coming from Bill Kirk Archie of Wolfe Research. Please go ahead.
Thank you good morning, Steve and Jeff.
Bill.
Could you speak to how much the competitive environment for high spending customers doesn't touch intensified post pandemic, particularly as other issuers look to compete beyond cash rewards to provide their customers with greater experiential value by investing in things like airlines.
Largest travel portals on the Lake and then I guess more specifically.
If I may just squeeze in on the acceleration in spending among large global corporates could you.
Discuss which products are enjoying the greatest uplift there. Thanks.
Yes, I mean.
No.
This environment has been a highly competitive environment since the financial crisis.
And it's.
It Hasnt really changed I mean people invest in more things I mean, we've all raised the price of poker here, a little bit but.
We figure our competitors will continue to invest we figure that our competitors will copy what were doing and thats why its important for us to stay ahead and so.
So it has it intensified.
We just work under the assumption it's a.
Hi, Lee competitive environment, and it will remain a highly competitive environment and youre really talking about the U S consumer segment, but.
You've got high competition in small business, you've got high competition in various markets high competition and corporate card, but what we strive to do is put the best products and services out there.
And that's worked out pretty well for us and so that requires a little bit more investment and requires investment across the board but.
In the long run.
I think you just have to look at look at the results.
Right now, we're requiring more cards than we've ever required, but we've said this before what's really important for US is that we're looking to acquire revenues and we're looking to acquire or build business. We talk in terms of cards, but those cards are generating newbuild business and generating revenue for us obviously, because we're raising our revenue guidance.
As far as corporate.
I'm not sure I really understand understand the question all that much but we only have a corporate card so and yes companies are spending, but we're only at 60 or <unk> is only at 60% and Jeff where are we overall.
On corporate corporate card spending.
It's a little higher because.
Travel never went down as of March. So the overall number is that about closer to 80% salary pandemic. So, but we're not we're not back yet, but youre seeing pockets of it and consultants are back out there on a road in bankers to back out there on the road.
And I think people are having a lot more meetings I know we had one in June and it was it was hard to get conference room space.
100, 150 people and even looking to book for next year for the same type of meeting by people, who are out there booking a year year and a half in advance and I think that's good for the lodging business is good for the airline business is good for us so.
That's kind of where it is.
Okay.
Thank you. The next question is coming from Lisa Ellis of Moffett Nathanson. Please go ahead.
Hi, good morning, Thanks for taking my question.
Steven Debbie commented earlier on some of the near term investments that you're making given the strong growth in top line youre seeing in wages and marketing et cetera can you also comment a bit perhaps on some of the longer term investments that youre leaning in on kind of taking advantage of the strong growth in the business to be able to.
Lehman and position Amex.
Better for the next three to five years okay.
We're always making there's always a balance between long term investments and short term investments and we don't.
I will talk a lot about the long term investments till they actually happened but.
You have to invest in new technology, and we've done that I've talked about that before because we've been one of the only companies that have said, we're not taking step function changes in our technology investment because we've been investing in technology.
All in all.
We're constantly investing in value proposition.
When people look at that and we sit here on the phone here and we talk about it.
So what are you going through the platinum card well, it's not the platinum card.
<unk> is the 29 proprietary countries that we operate in the small business cards that we operate in those countries and the corporate cards, we operate in those countries and the co brand cards, we operate in those countries and a personal cars green gold platinum and Centurion. So we're constantly investing in I think.
We use the platinum card in the U S. These are business or personal as a proxy for our overall investment and thats not it because we're investing in all our core products across the globe on an ongoing basis, you can't have product refreshes by just snap your fingers and saying Hey, we're going to have a product refresh uses months and months and months in the making and.
<unk> and partnerships and so forth, but look we continue to continue invest in our allowance program. We continue to look at those things that add more value I mean, you've seen the expansion of things that we've done whether it's checking accounts and debit cards for our consumers and our small businesses.
And what we're trying to do is to create more stickiness and more reason to interact with American express on an ongoing basis. I mean, just look at sort of how the how the how the services around our card products have evolved over the last few years, whether that be from a small business.
Perspective, where we can meet a wide variety of your working capital needs banking needs and so forth and then look at look at it from a consumer perspective and look at what we've done with <unk> with <unk> with over $30 million.
Registered users on <unk> and we have cards on file huge acquisition. So we'll continue to make those longer term investments, but youll continue to hear about them as they happen.
Thank you. The next question is coming from Moshe Orenbuch of Credit Suisse. Please go ahead.
Great. Thanks, Steve certainly note your comments.
Anticipating a recession in the next couple of quarters, given what youre seeing in your customer base.
Could you just talk.
Chuck conceptually about how you think about account acquisition.
In terms of kind of new accounts at a high level of new accounts, obviously industry as a whole.
Doing that quite clearly.
Less seasoned accounts are the ones that always would.
Carry somewhat more risk and maybe talk about the things you do to kind of mitigate that or steps you would take.
If you saw the data.
Start to rise.
Well, let me maybe start most of our just reminding everyone.
Of the highly analytical process we have.
Determining who we bring in to membership in the franchise.
Based on searching for that premium customer, whether they are a consumer or a small business.
It's based on the vast amounts of data and history, we have.
And it's based on having very high financial cut offs for who we allow into the franchise.
Or not and when you look at the outcome of that process right. Now we are on average, bringing in new customers, who have higher credit quality than we saw pre pandemic in 2019, who are showing much higher spending profiles and who are also carrying balances.
And a greater rate. So so we feel really good about the people, we're bringing into the franchise and as you've heard Steve and I and Doug and others talk about we also always when we bring people in model.
Their results, assuming there will be a recession I don't know when there'll be a recession, but their wellbeing and so we build a through the cycle view of the economics right into our upfront calculation.
Whether we think it's a good idea or not to bring a given customer into the franchise at a given level of marketing expense and the other thing I'd say is.
That changes.
That can change daily that can change week.
Those criteria could change monthly it all depends on how.
How we're looking at.
What are what our models are showing and what we're feeling.
The other reality is is we could lower our thresholds.
Spend even a lot more money.
But there is that balance that you have in that balance of making sure that.
We're growing the bottom line is in an appropriate fashion.
And also making sure that we have a higher quality.
Consumer and small business as part of our franchise, but it is it is something that has been developed over many many years and it's not static I mean, I think thats. The key point. This thing is not static and we continue to adjusted and modified Steve. The other thing I would add and I'm going to quote you.
Okay.
We run the company for the long term, we make these decisions on a through the cycle basis.
A recession at some point don't know when but the thing about recessions because theyre always followed by a recovery in <unk>.
We're running the company to achieve the highest possible sustainable level of long term growth.
And we think that the process we have in the analytics, we have for bringing people into the franchise are very consistent with that.
Thank you. The next question is coming from Chris Donat of Piper Sandler. Please go ahead.
Good morning, Thanks for taking my question.
Wanted to dig.
Tried to dig a little deeper on the <unk>.
Travel and entertainment.
Recovery in the Slide 23, you had.
And revisit the question about possible pull forward.
I heard the commentary around bookings and so that seems good for visibility for airlines and lodging what I'm wondering about is should there be any reason to be concerned around restaurant spending which has been really strong.
And as restaurants spending highly correlated with lodging and airlines to maybe we don't need to worry about it or.
Just if you're seeing anything that could be a cause for concern and maybe future pullback in restaurant.
That's the only thing I would say is that if restaurants spending is really highly correlated with lodging and airlines youre going to expect it to go up.
But I think look I mean anybody that's been to a restaurant prices are a little bit higher.
Because they're they've got wage they got wages and they've got food cost and so forth but.
Look from my perspective.
Restaurants, really sort of a lot of them change their business models during during the pandemic because restaurants that werent doing takeout do take out and so people are reading out a lot a lot more.
They are spending more time at restaurants and ordering for restaurants. So.
No I really don't think its highly correlated at all and in fact.
If you took restaurant out and we just said travel and.
And travel being defined as car rental lodging in.
And are we're not we're not back yet right.
Pulling what's pulling teeny over the finish line here to go past that 2019 is truly restaurants.
So if anything as people travel more.
You might see more you might see more restaurant spending.
The other the other side of that is while you won't see more restaurants spending because now lead to different location. So.
I don't think its I don't think a pullback here will really hurt restaurants.
All that much.
Thank you. The next question is coming from Rick Shane of Jpmorgan. Please go ahead.
Thanks, guys for taking my question.
Think about the numbers two things stand out one is the loan growth and the other is obviously.
The strong penetration for millennial and Gen Z.
Our card growth I am curious if.
As millennials and Gen Z customers are taking cards. If those are being delivered with additional features enabled on borrow or are their behavioral factors that are causing.
Your younger demographic to borrow more.
Well, maybe I'll start Steve So first we have moved.
Over the last couple of years for it to add to the majority of our charge products a pay over time capability.
For our existing card members that phases in a variety of four.
For new card members that capability is.
As it is as they get the card. So I do think that has some impact on our results. There also is a demographic feature.
Feature as I talked about earlier, if you look at who we're bringing into the franchise now and there is a skew towards the millennials and Gen Z as they are higher spending higher credit quality quality and there is a propensity to carry balances that is a little higher than what we see.
And the older demographics and they also tend to use our.
Pay it plan it feature a little bit more which is.
And I'll use these words buy now pay later, but on the back on the backend as opposed to a point of sale I mean, they can go onto their statement and decide look for this particular charge I'm going to pay it in six installments and im going to pay that.
$100 $100, a month are going to pay the rest of my balance in full so I think thats the ability of looking at your statement.
Deciding which things you might want to paint an installment deciding which thing you might want to use pay with points to pay deciding which thing you may want to revolve and in deciding which things you want a painful.
<unk> is a pretty good feature of the product and so when you look at meeting somebody's entire payment needs.
That kind of does it in one stop shopping.
Thank you. The next question is coming from Mihir Bhatia of Bank of America. Please go ahead.
Yes.
Good morning, and thank you for taking my questions.
One I wanted to ask a little bit about just longer term I mean I. Appreciate your comments about making investments now while the opportunity is available but I was wondering just longer term for example in 2022, you've guided the Longbow.
The higher than longer term revenue growth in 2020, but will that also translated into higher than long term EPS growth are higher than long term <unk> growth or is there just so much white space available for you just the amount of growth opportunity that 2023 could also be another big investment deal.
Trying to understand how you balance that all of those revenue upside you see versus the investment opportunities available to you.
Well I can't resist.
By pointing out that.
Yes, Stephen I have talked a lot about the heavy investments.
We're making this year, we're also growing our pre tax pre provision profit by 27%.
This quarter in line with the first one.
Percent revenue growth look as Steve said earlier, we'll have to see I think we feel really good about the revenue momentum we have.
And so just mathematically given our long term sustainable goals in a steady state environment for 2024 and beyond I would expect to be above that.
How easily above the 10% level on revenue growth next year, how much don't know we'll have to see.
And that provides a pretty darn good platform for good earnings growth.
All that said, it's only July 22nd we haven't given you guidance specific guidance for next year and the wildcard from a GAAP EPS perspective in all of this is the volatility that you've seen so much of in the last 10 quarters and the C. So credit reserves because.
We have good I think visibility and beliefs about the trajectory of our own business.
But the consensus macroeconomic forecast and how it evolves is going to have a big influence on what we booked for credit risk, but just think about those two numbers as Jeff throughout 31% revenue growth and 27% <unk> growth.
Would you feel better if it was 32% and we did.
Decided not to invest.
I wouldn't.
And I think what's really important and I'll take you back to Investor day.
This is a flywheel.
Scale is important.
Scale begets more scale.
And not crazy scale, but scale with premium.
Card members from a small business perspective, and a consumer perspective that merchants want to see and merchants want to provide value to which continues that strengthen the flywheel.
And that's one thing as we talked about do you see more competition.
The one thing that is really really hard to replicate and we havent use these words, but this it closed cycle half otherwise known as the famous closed loop.
The ability to have those merchants and have those card members and to be able to feed more off one another from a value perspective is really really critical and the value that we're able to provide merchants with high spending card members and the value of those merchants are able to provide to our card members is really really important.
So as we sit here and look at our business and look at it long term, what's really important is.
That growth in that sustainable growth and again through all the noise out around seasonal in credit reserve releases and bills and so forth and if you focus on on that number was 31% and 27% is pretty good.
And so we feel really good about the level of investment that we've made in the business and quite honestly don't necessarily focus on any of those individual line items, but focus on the aggregate in what it's driving in the values, creating and if you're just going to measure value.
Through quarterly EPS growth, you're missing the point, which you need to re measure value is on how sustainable your business model is over the long term and all we're doing is enhancing our business model over the long term with these investments.
Thank you our final question will come from Don <unk> of Wells Fargo. Please go ahead.
Hi, Good morning can you provide an update on <unk> progress are you seeing small businesses accelerate their automation accounts payable and also a large corporate on the.
Supplier side are they accepting more cards.
The short answer is yes.
We don't we're not sharing all the statistics, but.
Small businesses continue.
When you look at our small business base.
Probably over 80% of their spending is <unk> spending versus versus <unk> spending.
And we continue to see a com.
<unk> pay go up for us our partnerships continue to yield more value, we're seeing what Jeff talked about it you are worried about 80% of where we were from a corporate card perspective, but yet only 60% from a travel perspective, so thats driven by more b to b, but its not when you look at that automation of <unk>.
<unk> some of it is automation of existing business, especially in the small business and some of it is growth, but it is still continues to be a long term play but are you seeing more suppliers take it.
And we will continue to will continue to work towards getting more acceptance and leveraging.
Our our flexible model here to be able to work with suppliers and our small businesses and corporations to drive more acceptance and to drive more spend.
With that we'll 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 operator back to you.
Ladies and gentlemen.
A 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 a digital replay of the call at 8776606853 or 20161 to 741.
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That will conclude our conference call for today. Thank you for your participation you may now disconnect.
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