Q4 2022 American Express Co Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the American Express Q4 2022 earnings call at.
At this time all participants are all the listen only mode.
Later, we will conduct a question and answer session.
If you wish to ask a question. Please press Star then one on your Touchtone phone you.
You will hear a tone, indicating you up and placed in Q.
You may remove yourself from the queue at any time by pressing Star then two.
If youre using a speakerphone, please pick up the handset before pressing the numbers.
Should you require assistance during the call. Please press Star then zero 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. Carey Bernstein. Thank you. Please go ahead.
Thank you Donna and thank you all for joining today's call.
As a reminder, before we begin today's discussion contains forward looking statements about the company's future business and financial for.
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 reports 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 the earnings materials for the prior periods. We discussed all of these are posted on our website at IR Dot American Express com.
We'll begin today with Steve <unk>, Chairman and CEO will start with some remarks about the company's progress and results and then Jeff Campbell, Chief Financial Officer, who will provide a more detailed review of our financial performance. After that we'll move to a Q&A session on the results with both Steve and Jeff with that let me turn it over to Steve. Thanks, Karen Good morning, everyone. Thanks for.
Joining us today, it's great to be with you to talk about our 2022 results and our outlook for 2023.
As I go through our results I will tell you why they strengthened my confidence in our plan to generate strong growth over the long term.
A year ago, we introduced our growth plan, which provided a roadmap for delivering annual growth rates for revenue and earnings per share at levels that are higher than the strong growth rates, we were delivering before the pandemic.
Our results over the last four quarters demonstrate that our strategy is clearly working we exceeded the full year guidance, we laid out in our growth plan for both revenues and EPS and we did so against the mixed economic environment revenues, which reached all time highs for both the quarter and the year were up 25% for the full year exceeding the 18th.
The 20% guidance, we started the year with an earnings per share of $9 85.
Was well above our guidance of 925 to $9 65.
The momentum we saw through the year in card member spending engagement and retention continued in the fourth quarter.
Fourth quarter billed business reached a record quarterly high of 357 billion and was up 25% for the full year, demonstrating our continued ability to acquire engage and retain high spending premium card members customer.
Tension and satisfaction remained very strong in addition to strong internal metrics. We were recognized once again by our customers for providing industry best products and services ranking number one in customer satisfaction in both the 2022 J D power U S consumer credit card study and the U S small business card study.
The investments we've made in our value propositions continue to attract large numbers of new premium customers. We acquired 3 million new card members in the fourth quarter, even as we increased our already high credit thresholds through the year for.
For the full year, new card acquisitions reached a record level growing at $12 5 million and nearly 70% of our new accounts acquired are on our fee based products millennial and Gen Z customers continue to be the largest drivers of our growth representing over 60% of proprietary consumer card acquisitions in.
Quarter and for the full year.
Credit metrics remained strong supported by the premium nature of our customer base, our exceptional risk management capabilities and the thoughtful risk actions, we've taken through the year.
Looking ahead to 2023 and beyond let me tell you why these results increased my confidence that we are positioned to deliver on our growth plan aspirations.
We're in a great business, we operate in the most attractive segments and geographies of the fast growing payment space as highlighted by our leadership positions with premium consumers, including millennials and Gen Z years, small and medium sized businesses as well as serving the largest corporations in the world.
We bring to this space a number of advantages that are very difficult for our competitors to replicate.
These include our brand our unique membership model, a premium global customer base and an integrated payments model form.
<unk>, forming the foundation of these advantages is our talented and dedicated colleagues who deliver unparalleled service to our customers.
Together the marketplace opportunities, we see in the competitive advantages, we can leverage create a long runway for growth.
We intend to capture these opportunities and build on our momentum by continuing to invest at high levels in several key areas.
Continuously innovating, our consumer and SME products refining, our powerful marketing and risk management engines, and capturing our fair share of lending.
Growing merchant acceptance with a particular focus outside the U S and expanding partnerships to drive customer value across the enterprise continuing to introduce new digital capabilities that delivers seamless intuitive customer experiences in their channels of choice and expanding into adjacencies that reinforce our core such as new lifestyle and <unk>.
<unk> services for consumers and Smes, which adds more value to our membership model all of this investment happens while continually focus on gaining efficiencies in our marketing and operating expenses.
As we've demonstrated consistently over the past two years executing this investment strategy build scale, which fuels a virtuous cycle of growth. It starts with the high spending highly engaged premium customer base. These premium customers attract a growing network of merchants and partners, who had more value to our membership model, which in turn.
<unk> enables us to attract more premium customers, who attract more merchants and partners, which creates more scale.
This scale enables us to generate more investment and operating efficiencies in our membership model, making it more difficult for our competitors to catch up.
So what does this mean for 2023 are planned for this year is built on continuing our investment strategy in the areas I mentioned.
While factoring in the Blue chip economic consensus for slowing macro economic growth.
And as always we have plans in place to pivot should the economic environment changed dramatically.
This translates into 2023 guidance consistent with what we originally laid out in our growth plan last year, specifically, we expect revenue growth of 15% to 17%, which is higher than our long term growth plan aspirations and EPS of $11 to $11 40.
In addition, we plan to increase our quarterly dividend on common shares outstanding to <unk> 60, a share up from 52.
Beginning with the first quarter 2023 dividend declaration.
To sum up our 2022 performance shows that our strategy is working and based on our performance to date and what we see for 2023 more.
More confident in our ability to achieve our aspirations for double digit annual revenue growth and mid teens EPS growth in 2024 and beyond.
Ill now turn it over to Jeff to provide more detail about our performance as always we'll have a Q&A session. After jeffs remarks.
Thank you, Steve and good morning, everyone. It's good to be here to talk about our 'twenty two results, which reflects steady progress against our multiyear growth plan that we announced last January and also to talk about what our 2022 results mean for 2020.
I'll also spend some of our time this morning, focusing on our full year trends since it is year end and since looking at our business on an annual basis is more in sync with how we actually run the company.
Starting with our summary financials on slide two full year revenues reached an all time high of $52 9 billion up 27% on an FX adjusted basis, notably our fourth quarter revenues of $14 1 billion also reached a record high for the third straight quarter and grew 19% on an FX.
Adjusted basis.
This revenue momentum drove reported full year net income of $7 5 billion and earnings per share of $9 85 for.
For the quarter, we reported net income of $1 6 billion and earnings per share of $2 seven.
Which did include a $234 million impact from our net losses in our Amex ventures strategic investment portfolio.
As I've said throughout the year year over year comparisons of net income have been challenging due to the sizable credit reserve releases, we had in 2021.
Because of these prior year reserve releases. We have also included pre tax pre provision income as a supplemental disclosure again this quarter.
On this basis.
Pretax pre provision income was $11 8 billion for the full year and $2 9 billion in the fourth quarter up, 27% and 23% respectively versus the prior year, reflecting the growth momentum in our underlying earnings.
So now let's get into a more detailed look at our results beginning with volumes starting on slide three we saw good quarter over quarter growth in volumes I would note that we reached record levels of spending on our network in both the fourth quarter and full year 2022.
Total network volumes in billed business were up 16% and 15% year over year in the fourth quarter, and 24% and 25% for the full year on an FX adjusted basis.
Now of course growth rates for <unk>.
Earlier in the year included more of a recovery on the lower levels of volumes in 2021, and we are now to the point, where we have lapped the majority of this recovery.
We are pleased with this growth and the fact that it is being driven across customer types and geographies on slides four through seven we've given you a variety of views across our U S consumer services commercial services and international card services segments and the various customer types within each as a few key points I suggest you take away from these.
Various perspectives.
Starting with our largest segment U S consumer billings grew 15% in the fourth quarter, reflecting the continued strength in spending trends from our premium U S consumers.
Our focus on attracting engaging and retaining younger cohorts of card members through our value propositions drove the 30% growth in spending from our millennial and Gen Z customers on slide five you can now see make up 30% of spend within the segment.
Turning to commercial services, you'll see that spending from our U S small and medium sized enterprise customers represents the majority of our billings in the segments supported by our strategic focus on expanding our range of products to help our SME clients run their businesses.
We saw another quarter of solid growth and USS and meet those you can see that it was the slowest growing customer type this quarter up 8% year over year as you heard Steve talk about a bit last month at an Investor conference or Smes have recently started to slow down spending in certain categories, such as digital advertising. So we continue to monitor that.
And trends.
Moving to our U S large and global corporate customers. The one small customer type that has not come back to pre pandemic spend levels. They did continue though their steady recovery this quarter with overall billings out of 11% below pre pandemic levels and.
And lastly, you'll see our highest growth and international card services. As this segment is now in a steep recovery mode. Given it started its pandemic recovery later than other segments spending from international consumer and international SME and large corporate customers grew 23, and 32% year over year, respectively.
Q4.
Across all customer types TNF spending momentum remained particularly strong in the fourth quarter. While we also saw a nice sequential growth in the amount of goods and services spending versus last quarter.
There are a few pockets that slowed such as the digital advertising spend and SME that I mentioned earlier.
So we'll do all of these takeaways mean for 2023.
At this point on a dollar basis most of our spending categories has fully recovered. So I would expect more stable growth rates. This year across spending categories with the exception that year over year growth rates for T&D spending will likely be elevated in Q1, as we lap the impact of <unk> from the prior.
Near year.
Importantly, all of the things that Steve just talked about that make up the strategy underlying our growth plan have created a foundation for sustainable growth rates greater than what we were seeing pre pandemic.
Now moving on to loans and card member receivables on slide eight we saw year over year growth of 24% and our loan balances as well as good sequential growth. This loan growth is now exceeding our spend growth as customers steadily rebuild their balances.
Given the volumes of course have now lapped the steep phase of recovery, we do expect the growth rate of our loan balances to moderate as we progressed through 2023, but to remain elevated versus pre pandemic levels.
The interest bearing portion of our loan balances, which surpassed 2019 levels last quarter also continues to consistently rebuild with over 70% of year over year growth in the U S coming from our existing customers, which is about 10 percentage points more than what we saw in the years leading.
To the pandemic.
As you then turn to credit and provision on slides nine through 11 to high credit quality of our customer base continues to show through in our strong credit performance.
Remember loans and receivables write off and delinquency rates remained below pre pandemic levels. So they did continue to tick up this quarter as we expected, which you can see on slide nine.
Going forward, we expect delinquency and write off rates to continue to move up over time, but to remain below pre pandemic levels in 2023 for card member loans.
Turning now to the accounting for this credit performance on slide 10, and so this year and because of the pandemic has clearly impacted the timing of quarterly reserve build and release adjustments across the industry. I think it is helpful to look at our full year provision results.
Full year 2022 provision expense was $2 2 billion.
Which included a $617 million reserve build primarily driven by loan growth and continued steady unexpected increase in delinquency rates and changes in the macroeconomic outlook as the year progressed.
The $2 $2 billion number is of course still unusually low by historical standards relative to the size of our loan balances and card member receivables.
The full year $617 million reserve build we saw $492 million of it in the fourth quarter. Since earlier. This year, we were still releasing a significant amount of the credit reserves built to capture the uncertainty of dependent.
At this point, we no longer have any of these pandemic driven reserves remaining on our balance sheet.
Moving to reserves on slide 11, you can see that we ended 2022 with $4 billion of reserves, representing two 4% of our total loans and card member receivables.
This reserve rate is about 50 basis points below the levels, we had pre pandemic our day one seasonal.
Afflicting continued premium position of our portfolio and the strong credit performance, we have seen we've.
We view this consolidated reserve rate is more comparable to <unk> than the individual loans and receivables rates because as we talked a bit last quarter, our charge products in many instances now have some embedded lending functionality.
We expect this reserve rate to increase a bit as we move through 2023, but to remain below pre pandemic levels.
Taking all of this into account in 2023, you should expect to see provision expense move back towards more of a steady state relative to the size of our loan balances in card member receivables for the first time since we adopted <unk> in early 2020.
Given the combination of our strong loan growth.
Usually low level by historical standards of provision expense in 2022.
Would expect a significant year over year increase in provision expense.
Moving next to revenue on Slide 12, total revenues were up 17% year over year in the fourth quarter and up 25% for the full year. This is well above our original expectations driven by the successful execution of our strategy and as part of which strengthens our confidence in our long term aspirations.
Before I get into more details about our largest revenue drivers in the next few slides I would note that you see a 200 basis points spread between our FX adjusted revenue growth and reported revenue growth for this quarter. While this is less of an impact from the strong dollar than what we saw in the prior quarter. It does remain a modest headwind.
Our largest revenue line discount revenue grew 16% year over year in Q4, and 27% for the full year on an FX adjusted basis as you can see on slide 13. This growth is primarily driven by the momentum seen in our spending volumes throughout 2022.
Net card fee revenues continued to accelerate throughout this year up 25% year over year in the fourth quarter and 21% for the full year on an FX adjusted basis as you can see on slide 14.
In 2023, I expect net card fees to be our fastest growing revenue line.
I would expect growth to moderate from the extremely high level, we saw this quarter.
This steady growth is powered by the continued attractiveness to both prospects and existing customers of our fee paying products due to the investments we've made in our premium value propositions as Steve discussed earlier with acquisitions of U S consumer platinum and gold card members and U S business platinum card members, all reaching record highs.
In 2022.
Moving on to Slide 15, you can see that net interest income was up 32% year over year in Q4, and 28% for the year on an FX suggested basis due to the recovery of our revolving loan balances. The rising interest rate environment has had a fairly neutral impact on our results in 'twenty two.
As deposit betas lagged the rapid and steep benchmark rate increases during the year. However, when you think about 2023 deposit betas are now in line with more historical levels. So I would expect the year over year impact from rising rates to represent more of a.
Headwind 2023.
To sum up on revenues, we are seeing strong results across the board and really good momentum looking forward into 2023, we expect to see revenue growth of 15% to 17%.
Now all of this revenue momentum. We just discussed has been driven by the investments we've made in those investments show up across the expense lines you see on slide 17.
Starting with variable customer engagement expenses. These costs as you see on slide 17 came in at 42% total revenues for the fourth quarter and 41% for the full year based off the Q4 exit rate combined with our continued focus on investing to innovate our products I would expect variable customer engagement costs.
Our approach 43% of total revenues in 2023.
On the marketing line, we invested around $1 3 billion in the fourth quarter and $5 5 billion.
Year as a reminder, our marketing dollars, mostly represent the things we do to directly drive great customer acquisition results we are seeing.
As we look forward, we remain focused on driving efficiencies so that our marketing dollars grow far slower than revenues as we did for many years prior to the pandemic.
As a result in 2023, we expect to have marketing spend that is fairly flat to 2022.
Moving to the bottom of slide brings.
Brings us to operating expenses, which were $4 1 billion in the fourth quarter and $13 7 billion for full year 'twenty two and.
And understanding our Opex results, it's important to note the net mark to market impact to our Amex ventures strategic investment portfolio that I mentioned earlier with reference to Q4.
These gains and losses are reported in the Opex line and totaled $302 million in losses for full year 2022, while in the prior year, we had a $767 million benefit and net gains.
Even putting this aside as Steve and I have discussed all year. Our 2022 operating expenses do represent a step function increase compared to prior years as we've invested in key underpinnings to support our revenue growth and as inflation has had some impact on our expenses.
Moving forward similar marketing, we are focused on gaining efficiencies and getting back to the low levels of growth in opex that we have historically seen.
For 2023, we expect operating expenses to be around $14 billion and Cds costs as a key source of leverage relative to the high level of revenue growth and our growth plan.
Last our effective tax rate for full year 2022 was around 22% our best estimate of the effective tax rate in 2023 is between 23% to 24% absent any legislative changes.
Turning next to capital on Slide 18, we returned $4 9 billion in capital to our shareholders in 2022, including $1 billion in the fourth quarter.
With $639 million in common stock repurchases and $389 billion in common stock dividends all on the back of strong earnings generation. We ended the year with our CET one ratio at 10, 3% within our target range of 10% to 11%.
In Q1, 'twenty three as Steve discussed, we do expect to increase our dividend by 15%.
<unk> 60 per quarter, consistent with our approach of growing our dividend with earnings and our 20% to 25% target payout ratio.
We will continue to return to shareholders the excess capital, we generate while supporting our balance sheet growth going forward.
That's been brings me to our growth plan in 2023 guidance on slide 19.
2022 was a strong year, where we exceeded our full year guidance that we laid out in our growth plan last January for both revenues and EPS.
These results have strengthened our confidence in our 2023 guidance.
First and most important.
We expect the strategies that Steve laid out earlier to deliver continued high levels of revenue growth leading to our revenue growth guidance for 2023 of 15% to 17% and setting us up well for 2024 and beyond.
As you think about the drivers of EPS growth in 2023 first we expect to return to the low levels of growth, we have historically driven in our marketing and operating expenses producing some nice leverage.
Going the other direction.
The two notable headwinds that should be just 2023 challenges are around the year over year impacts of provision and of interest rates as I discussed earlier.
Combining all of these factors together leads to our EPS guidance of $11 to $11 40 for 2023.
There is clearly uncertainty as it relates to the macroeconomic environment.
But as Steve discussed our 2023 guidance factors in the Blue chip macroeconomic consensus.
As for slowing growth.
Though not a significant recession.
Also say that our guidance is based on what we are actually seeing in terms of behavior from our customers around the globe.
Of course, it reflects what we know today about the regulatory and competitive environment.
We feel good about the momentum we see in our business and in any environment remain committed to running the company with a focus on achieving our aspiration of sustainably delivering revenue growth in excess of 10% and mid teens EPS growth in 2024 and beyond as we get to a more steady state macro environment.
And with that I'll turn the call back over to Carrie to open up the call for your questions.
Thank you Jeff.
We open up the lines for Q&A I will ask.
Please limit yourself to just one question. Thank you for your cooperation and was that the operator will now open up the line for questions.
Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your Touchtone phone.
You'll hear a tone, indicating that <unk> been please. Thank you you may remove yourself from the queue at any time by pressing Star then two.
If youre using a speakerphone please pick up the handset before pressing the numbers one moment. Please for the first question.
Our first question is coming from Ryan Nash of Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Hey, good morning, Ryan.
So Steve.
Maybe just to focus on the revenue growth, obviously, 15% to 17 is much better than the market was expecting given macro concerns.
Theres, obviously been a little bit of an uptick in white collar unemployment. So could you maybe just talk high level about how youre able to put up this type of revenue growth.
In a somewhat weakening environment, maybe just talk through some of the things that are idiosyncratic to amex that Jeff just referenced at the end of the call that maybe the market isn't appreciating that should be big drivers of revenue growth in the year ahead.
Well I think Jeff really hit it I mean.
And he basically said was and this is where we were focused on is we can only run the business and forecast the business on what we're seeing and what we're seeing is we're still seeing high consumer growth.
We're seeing high consumer growth in international we talked about some moderation in small business.
Corporate spending still has not come back Jeff talked about <unk>.
I think when you think about the model I think.
You have to get an appreciation for is.
We're a small segment of the overall U S population and it's a premium customer base in.
That premium customer base.
Not immune to economic downturns certainly.
Right now as spending on through and so.
Other thing that we've been doing is we're constantly tightening up.
The card members that we're acquiring I mean looked at the card member base. We have today is from a credit perspective better than the card member base that we had pre.
Pre pandemic in card members. We are acquiring today are reaching a higher hurdle rate than ones. We acquired just a year ago and because of the value. There is still a good pool of customers.
That are out there as far as overall white collar unemployment.
What I would say is yes, <unk> seen some headlines of individual companies that are.
Going through layoffs, but the one thing that I would say is I think it's really important to look at where these companies were pre pandemic and they're probably still unemployment levels that are much higher than what they were pre pandemic and so there is a there is a right sizing a little bit, but even with that right sizing, we still have unemployment rates under 4%.
<unk>.
And so look we look at unemployment.
But it has not at this particular point in time had any impact.
On our on our on our card member base.
<unk>.
Keeping a right offset.
Eight six is sort of not sustainable and were $1. One as Jeff said it shows on the slides and that will tick up a little bit over time, but that's just that's just normal for the business. So I think what you have to really.
Have to look at is this is a premium card member base that appreciates premium products.
And is spending and it is a.
Small it is a small piece of the overall U S economy, and we've talked about the economy being bifurcated and there's probably no. Better example of what we have what we have here. The other thing that I would say and when you think about revenue growth. Unlike our competitors, we have a three legged revenue stool here right you've got you've got <unk>.
Is that we get for merchants you have card fees card fees grew 25% growth in knee.
The fourth in the fourth quarter and while that's a high number we certainly expect double digit double digit card fee growth to continue and then you have obviously, which is a smaller portion of our business.
We have obviously interest.
<unk> revenue is also as well so when we look at the card members. We're acquiring we're really looking at acquiring revenue across those three components and the other thing that I'd point you to is 70% of the cards that we acquire are paying fees. So.
That's how we come up with 15% to 17%.
Thank you. The next question is coming from Sanjay <unk> of <unk>. Please go ahead.
Thanks, Good morning.
It's on a revenue question as well could you maybe just disaggregate the building blocks of the revenue growth.
I know you mentioned a couple of things in terms of the trends on fees and NII I'm, just looking at discount revenue and year over year change in growth and that sort of decelerated a little bit more then.
I had anticipated I guess does that slow down maybe some help there would be helpful.
I think Sanjay the building blocks are pretty straightforward and of course as Steve just pointed out in our model you always have to start expanding.
That's what drives our model that lending.
And I think probably be important.
Words that I would pick out some of the things Steve and I have just said is for most of our spending category. As you think about what's important in terms of dollars, we really have hit.
The recovery point and so as we look at the Q4 rate I actually see those exit rates is approaching pretty stable levels for what we think given the tremendous success, we're having in bringing new customers into the franchise because as you know Sanjay that is a key aspect of what.
Drives our growth actually see those rates.
Being fairly stable going forward. So that's what drives first really strong discount revenue growth.
Our card fee growth as Steve just mentioned is super sustainable I'd, just remind everyone that is the line item that grew double digits right through all the ups and downs of the <unk>.
Demick and gosh, our latest figures that Steve just gave you 70% of our card members on fee paying products. This quarter, we have a long ways to go to keep growing net card fees and then look it's the third leg of the stool, it's only 19% 20% of our revenues, but net interest income matters and we are still in a rebid.
<unk> mode, a balanced certainly that process has now begun in earnest and Thats why you saw our loans grow a little faster than volumes this quarter.
I don't expect to see quite as high a rate next year as you saw in Q4, but it's still above in 2023, I would say the stable level and so above where we were pre tax debit because of that rebuilding process.
When you put all that together with the comments that you've now heard both Stephen I'd make which is look.
We got to run the business based on what we see with our customers.
Who are premium consumers select segments of small businesses in the largest companies in the world.
And Thats, where you get to the 15% to 17% revenue growth.
Thank you. The next question is coming from Betsy <unk> of Morgan Stanley . Please go ahead.
Hi, good morning, good morning.
So another kind of subtext on this theme I wanted to understand a little bit about how I should be triangulating.
<unk>.
Our revenue growth outlook, which is very clear.
With the.
Comments around normalization of credit should I be expecting that you are underwriting to that pre pandemic level of was it $2 three on the slide.
Marketing spend being flat.
And the proprietary.
Net acquired accounts here coming down a little bit in the quarter. So.
When I see all of that I am thinking.
Your.
Bubble of account acquisitions.
Is through I, suppose and you don't need that marketing dollars to drive that incremental Rev growth at the same time as youre underwriting to.
Group credit pool, Thats similar to pre pandemic. So we should have that NCS.
NCO trajectory move back up towards pre pandemic or is there.
Something that I'm missing in pulling that altogether.
Yes.
There's a lot there.
But let me try and talk about marketing and Jeff can pick up on other components, but.
So you look to $5 $5 billion of marketing spend was all time record high in.
The $12 5 million cards that we acquired the fact that you saw a 300000 car decrease.
Sequentially quarter over quarter.
Not something that we're concerned about at all in some of the timing of when you do your acquisition and so forth and so but.
The key point here is that we are only looking at marketing efficiencies and.
We continuously raise the bar on who we are bringing into the franchise. So.
We're not I wouldn't say, we're at a bubble in terms of card acquisition. We don't project card acquisition, we provide the card acquisition numbers, but.
For us probably we need to do a better job.
Going forward from a metrics perspective, but we really look at revenue I mean, we look at the cards that we acquire in terms of how much revenue we can acquire.
It's the same thing with billings I mean, not all billings are created equal I mean theres billings.
That that you have that don't have a lot of value to it within the industry. We look at profitable billings, we looked at card fees and we look at that as Jeff said.
Interest income so I wouldn't take away from from this that we're at an inflection point or a bubble or anything like that I think the $5 5 billion is a tremendous amount of money to go out there and acquire with and we're pushing the organization to even be more efficient and more effective with that money. So.
We're looking at the same kind of acquisition levels.
That we've had in the past with higher underwriting standards as well as far as operating expenses go.
As you start to think about that.
Had a big step up in operating expenses as we had tremendous growth.
Having had a lot of experience running the components of this organization from both a technology perspective, and an operating perspective travel and what have you.
As you see those volume increases you need to manage and get to that to get to that next level of scale and we believe that we have gotten to that next level of scale and we will get back to normal operating expense growth in the other part of it just like everybody else.
<unk> there was some inflationary pressure within there, but make no mistake about it there was we had to get to another scale. When you have 25% revenue growth, we have 25% billings growth. When you have travel bookings that are at all time highs and continuing to increase quarter over quarter, you have to put in place not only.
The digital capabilities, but the people to make sure that you can handle that so from an expense perspective.
The reason we're able to.
That we think marketing will be where it is in operating expenses will not grow at the same level that they will because we believe we've gotten to that scale component that we now believe that we can grow revenues, 15% to 17% get into a 10% growth mode, 2020, plus 10% plus growth mode 2020.
And beyond with that scale until the point in time I don't know when that is where we have to have another scale.
But what you saw from a growth perspective last year was all about all about the scale. So Jeff you want to talk about credit or anything else or not at all.
Right. So that's how I would think about that in terms of going below.
Sort of the components of revenue and house expenses relate to that to that revenue.
Thank you. The next question is coming from Mark Devries of Barclays. Please go ahead.
Yes. Thank you.
Sorry, if I missed this but can you talk about how sensitive your revenue guidance as to the macro.
Kind of what gets you to the high and low end of the range you provided.
And are you using it all the same assumptions around <unk>.
GDP and unemployment that you used to.
Set the reserve levels.
Mark one of the interesting things that I think surprises people as we have.
Looked historically.
Where you can imagine trying to find.
Really direct correlations between GDP growth and for that matter between movements in the market that affect People's financial wealth.
And I.
I think surprising thing to many people as we can't find any direct correlation between those two things. So when you look at our 15% to 17% guidance. It's really go back to what Steve and I have both now set a couple of times driven by it.
Our best indicator is what we see with our customers around the globe.
And how they are behaving.
And we certainly are aware of in thinking about various macroeconomic forecasts.
But you start with what behaviors are we actually seeing and I'd also remind everyone that the U S remains by far our largest market the U S economy shrank in.
In the first two quarters of 2022, and we just posted revenue growth for the full year, 25%. So so when I think about the 15% to 17% range of truly not whole of 15 is a weaker economy 17 frankly, it's.
I wish we were.
More precise about forecasting, but it's just a little bit of forecast error I would say based on the trends, we've seen and the macroeconomic consensus which is absolutely the economy is.
Supposed to slow when you look at that consensus and that's factored in here as well.
Thank you. The next question is coming from me here Bhatia of Bank of America. Please go ahead.
Thank you.
I think you said.
Hey, good morning.
I think you said, 70% existing lender.
Lending growth came from existing members is that a similar metric you can share on the spending side, just trying to understand as things normalize and we get into more of a normal cadence how.
Maybe help us protect a little bit on spending growth how that can translate that as we look at deal last few quarter results strong acquisition.
Well, so what I'd say is that when you look at.
Lending iron political back to that 70% number because I do think it's an important one to think about the implications I think occasionally people look at our loan growth and say Oh is that all of the new customers you are acquiring.
No of item and so we actually draw a lot of comfort.
From the fact that you have 70% of that loan growth coming from just our existing customers, who we know well.
Have history with really just rebuilding more towards historical levels. If you think about spending.
In our model, we talk a lot about the fact that we have.
By the standards of most industries remarkably high retention rates.
In the high <unk>.
Percent.
Range.
And Thats, a real key strength of our model once we get someone into the franchise base tend to stay that group depending on the economy is growing organically a little bit when you think about adding our new customers that as a key engine any point in time of adding another.
Normal environment varies over time, but I might ask you to around 8% to 10% kind of number so it's a mixture of super low retention.
What we're doing to spur more spending by our existing customers and that steady flow.
New customers and so one of the things again that Steve and I are both just talked about because I think people seem a little surprised by the 15% to 17%.
A key driver of why we're comfortable with that is our tremendous success over the last year.
And in the first weeks of 2023 at bringing great new customers into the franchise and the other thing I would say is and I said this in my remarks. This virtual virtuous cycle that we talk about.
The more card members, we bring in the more merchant and partner offers that we can get and so.
The engagement the increased engagement from existing cardholders is a really important driver of growth. So that the membership model as we still bring our card members in and sort of watch them.
They grow.
We bring our card members in and we want to work with them to grow we.
We do that from a small business perspective, with our account development teams, making sure that they are taking advantage of all the benefits of the card, making sure that theyre spending in categories that they can spend in.
Maximizing rewards and so forth and we do that.
With our base from an offer perspective.
Amex offers through other direct offers from.
Partners.
Embedded offers within within the model and so a lot of our engagement not only from a.
A customer service perspective is to making sure that our card members are taking advantage of all the aspects of the of the card that are out there and so we really look to grow.
U S same store sales right I mean, so from existing card members, we're constantly looking to grow that share of share of their wallet and.
And again that gets easier as the cycle gets bigger because more and more merchants want to reach more and more of our card members.
Thank you. The next question is coming from Brian Foran of Autonomous Research. Please go ahead.
Hi.
Asleep.
Positive outlook I don't want to sound negative, but I think we're all kind of dealing with its investors being like this is great I'll take it but help me think about.
What are the risks where could it go wrong.
So maybe one question and one follow up along the same theme.
Jeff when you were talking about the macro sensitivity one question I hear sometimes is that.
Note that the aspirational 2024, and beyond as a steady state macro.
I get the Investor question.
Where is the dividing line like what would.
Non steady state macro look like where that guidance within.
Aspiration within not apply so maybe you could touch on that like what what are the balance in your mind.
Steady state background.
Well I think.
Brian I would start with two comments first when you think about our long term aspirations.
We don't actually worry about recessions at all because the reality is at some point and I don't know if its six months from now or six years, there will be a recession.
And after that recession.
Recovery and it doesn't change our.
Our view of we should be able to steadily grow this company in excess of 10% now when there's a recession where you see.
A.
Very significant shrinkage in GDP so not.
Like the first half of last year, where maybe the U S. GDP went down a half a point or something but what are you suddenly see a quarter or two where you have pandemic.
Pandemic like or great financial crisis like.
Average percentage declines in GDP and you see huge spikes in unemployment.
If you go back to one of the appendix slides.
You will see that our seasonal.
Credit Reserve accounting assumes a baseline and also built in a downside scenario in that downside scenario you have 8% unemployment by the third quarter of 2023, well if theres a percent employment by the third quarter of 2023, we're going to have a few quarters.
Where we're project below our longer term aspirations.
But it's that kind of large shock that's going to knock us off for a few quarters, but I really want to keep coming back to and I suspect Steve you might reinforce this but.
It doesn't change our long term aspirations are how we're going to run the company now and I think just go back to the pandemic. So look we pulled back on.
We pulled back on acquiring card members because I don't think anybody had any line of sight.
The pandemic was worst in the financial crisis from a credit underwriting perspective.
You never say never but that's sort of like the 100 year flood right.
And so my perspective is we will still acquire in that kind of scenario and remember everything we acquired today, we acquired through the cycle, but we would do is move the credit criteria even further up.
What we would do again is we would engage with our card members and I think one of the most successful things that we did during the pandemic was retaining cardholders and retaining those cardholders.
<unk> financial relief programs that got them through the hump for a couple of months for six months, whatever it was or engaging them to spend in other areas.
To stick with us so the reality is is that.
If we were running this business quarter to quarter, which we don't.
You would pull back but the reality is as Jeff said have to every recession is a recovery and the last thing you want to do is retrench in such a way that you are not going to be able to take advantage of the recovery.
And that retrenchment.
Looks.
It looks like layoffs that don't make sense.
Market pulling back on marketing and trying to hit to hit an EPS number for a quarter or for year then.
As your relevance, which what's relevant is for 172 year old company to continue to grow over the medium and long term in the way you do that is you invest judiciously and you invest smartly and in times when things are bad you invest in your infrastructure.
You invest in your people because youre going to need great people through when a recession is over and she is going to need to do that and where companies make mistakes is let go of great people and also do not invest in those things that are going to need six to nine months from now when the recession. So.
Yes, we may have a moment in time and as Jeff said it could be six months it could be six years, but there will be a time, when we don't make that and but there will be a time when we exceed that and that's why we say our long term aspiration is for 10%, 10% plus growth in revenue and we feel we're on our way to that.
Thank you. The next question is coming from Rick Shane of J P. Morgan. Please go ahead.
Thanks for taking my question.
Look when we look at slide five it's really interesting in terms of the contribution and the significant growth from millennials and Gen Z and you guys have been.
Really successful there and we've seen that.
Progress over time.
Im curious given that the millennial Gen Z growth in the last year was basically five X.
Four to five X other cohorts.
And the significant loan growth if we looked at this.
Bob.
Distribution by age cohort not four.
Billed business, but by portfolio in terms of borrowings what the distribution what would it look like with millennials over index versus the peers.
Well the short answer Rick is no. When you think about the behavior of the millennials and Gen Z as there are a few distinguishing features and we've talked about these they tend to be more digitally in vaca <unk>.
<unk> tend to be more engaged with the overall value proposition, which we actually see as a good thing.
Because of that they often will engage more quickly when they get the new product, but I'd also remind you of the other stat. We've talked about this morning, which is 70% of our growth in loans right now is coming from existing customers. So as we add a lot of these millennials there that segment is.
Still.
Not adding as much to the loan growth because of the rebuild and balances by your existing customers so while their behaviors.
Of the younger card members are on average similar to the older card members. When you think about borrowing just sort of a math here because you've got this rebuilding effect, which say that theyre not dropping that big a portion of our loan growth and we tend to get a higher share of their wallet, but they have lowered.
They do have lower spending and.
The great part about millennials and Gen Z is is that it.
And depending on where you are in millennium. Some millennials are 40 now so.
Different different thing, but the reality is the lifetime value of these cardholders is going to be significantly more than the lifetime value of acquiring a boomer or acquiring a gen X are right now and in that.
Very attractive as well and if you look again Rick.
On page five you'll see that if you look it's 30% of the billed business growth on the other hand.
<unk> growth is only is only 6% in.
And some of those have been leery to go back travel still.
So we would also expect that to go up.
Thank you. The next question is coming from Dominick Gabriele of Oppenheimer. Please go ahead.
Hey, good morning.
Great results.
Good morning.
I just wanted to change the topic a little bit.
I just wanted your updated thoughts if you could just remind everybody about your ability to make account by account purchase limit authorization decisions given many of the accounts don't actually have stated line sizes on the charge cards. So I'm, just really wondering about severity of loss and a downturn versus.
The frequency is more based on unemployment, but your ability to really hone in on limiting the severity of loss given your underwriting techniques. Thanks, so much guys.
I think you just reminded us.
The reality is couple of things right number one.
We constantly go through and look at contingent liability, that's not being utilized and so.
We have somebody that has X, we're aligned and they're only using 25% of X. We may not keep extend that long because we don't want to be a lender of last resort right. That's number one.
Number two.
We also are for new card members, we are raising those cycles, but raising the limit excuse me raising the limit.
The hurdle rate debt that we acquire card members, but we underwrite every transaction, we make a credit decision.
Not based on the line because most of our card members do not have a line I mean, obviously traditional lending cards have lines.
But other than that we are underwriting every single transaction. So we're not letting somebody to run it up because they run it up in the past and we're not letting somebody run up to a limit and have that write off one of the advantages of our model and I am not going to get into all the variables and the need for a couple of reasons number one we don't have time and number two.
Very complicated and number three I, probably don't fully all understand the whole thing either but.
It is a.
An advantage. This model is that every single every single transaction is is adjudicated on its own merits, it's not adjudicated based on an open to buy.
That is very important it also but that's a that's from a credit perspective, that's really reassuring thing, but from a spending perspective. It also enables while you read some of these stories of Hey, I just bought.
A painting for $75 million.
There is nobody has a $75 million line right now those are very difficult underwriting decisions and <unk>.
Not for the faint apart but.
But it does show that we make those same kind of decisions on a 200 dollar purchase on a 400 dollar purchase every single transaction that comes through this system is adjudicated on its own merits not on sort of some open to buy and that gives us great great comfort.
In terms of not having somebody just run something up in and have something written off yes, Julian I'd add I think that is a unique capability that we have honed over many decades actually first started to charge card charge card product. The other advantage of a charge card product I would say Dominic is it does give us this <unk>.
Population, who was supposed to pay us in full every 30 days, which actually is almost like an early warning system.
From an overall risk perspective of when there are problems with pop up in various parts of the world or various segments of our various customer types.
And we think Thats actually helpful to our overall results.
Part of the many things that drives us historically and today they have by far best in class credit metrics.
Thank you. The next question is coming from Moshe Orenbuch of Credit Suisse. Please go ahead.
Great Great sorry to go back to the revenue guide but.
Jeff and I appreciate the 25% revenue growth for the full year, but the quarter was 17.
Between you and Steve you said that there was going to be a slowdown still strong obviously, but a slowdown in card fee revenue growth and with the comments about margin probably net interest income.
Yes.
Is there a part of the revenue base that you think is accelerating.
In 2023.
Yes, so two comments I think it's a good callout Moshe.
First comment is as you think about 2021.
Of course, the base year here, you saw things progressively pick up as you went through the year. So that's why each quarter our volumes on a year over year basis slowed a little bit.
But we also have pointed out I think youre sort of through that recovery period now. So I think what you see in Q4 and our view is very typical of what youre going to get now the one exception that we do think we will accelerate is the net interest income piece because you do have.
Customers continuing to rebuild balances.
Net card fees, probably moderates a little bit of net interest income probably accelerates a little bit but your discount revenue should be pretty consistent with what you have seen in this quarter and thats really the model that lead you from Q4 to what we expect for 2023.
Thank you. The next question is coming from Bob Napoli of William Blair. Please go ahead.
Thank you.
And maybe some topics that haven't been touched on yet Steve you called out investment in services and Adjacencies I'd say and also.
The international piece, expanding your merchant acceptance.
Any callouts on on Adjacencies BTB payments in Europe , how that contributes to your long term strategy and then international I seem to recall, Japan being an important market for you saw some good growth internationally, Japan reopened China is reopening.
Is there an acceleration potential in international and.
<unk> 2023, yes, so let me hit a couple of these topics and hopefully I'll remember the mall that you went through but look I think international.
We've seen really good and just look at the slides you've seen really good grew.
Growth from not only a.
A consumer perspective, which is over 20%, but international SME and large corporations are growing at 32%. So.
And remember pre pandemic those are the fastest growing parts of our business. So we expect that to continue to grow.
Which obviously, Japan is Japan is part of it in one of our one of our one of our top markets from a from an acceptance perspective.
Continue to grow.
Acceptance internationally, we're really happy with.
With the coverage gains.
That we've had.
And we'll continue to focus on that we've talked about focusing on priority cities with.
We focused on.
All the categories e-commerce in restaurants, and lodging and tourist attractions.
Hotel and so forth to get those up.
But again with that.
We're getting 23% and 30, 32% billings growth.
And our coverage is not where we want it to be yet and we will continue to invest in that coverage look as far as <unk> continues to be a good story for us, but it's just a smaller part it's a smaller part of the business and we continue to invest in capabilities.
And.
We will continue to focus on <unk>, but that will add not only to commercial spending but that will also add to small business spending as well and remember 80% of the small business spending that we have is is in the category of <unk> spending and so we'll continue to hunt hunt for that in.
Trying to automate more and more.
Of of those of those billings and it makes it easy to get in on the court.
Thank you. The next question will be coming from Don <unk> of Wells Fargo. Please go ahead.
Hi, Steve.
I'm just curious if you've seen anything that sort of raised your concern level around competition in U S. Consumer small business I mean, it seems to us like you might be pulling away a little bit from competitors I'm not sure.
Your metrics suggests either or not.
I mean, we we.
We continually look to raise the bar.
And I think that there's a lot of great competitors out there we've got.
JP Morgan and Bank of America, and Wells Fargo, and U S Bank and capital one.
Everybody is.
They are all strong.
They had all had pretty pretty strong pretty strong results from a growth perspective, but.
As I said.
In my remarks.
More value we continue to add.
The more we get our flywheel working the harder it is to catch up and we're not resting on our laurels and Thats why we continue to invest we continue to invest in value propositions. We continue to invest in capabilities, we continue to invest in service.
And so are we.
We increasing the distance between us and our competitors I don't know I don't know, how you measure that but I think we.
Our goal is to constantly make it hard for them to catch up.
And our goal is to make sure that we try and be one step two steps or three steps ahead of them and it's.
It's flattering actually they are coming after the segments that we're in.
But.
Competition is there.
And it is fierce and for incentive.
Competition is just not U S consumer its small business its corporate and international and so we're fighting a lot of battles here in terms of.
Defending our defending our territory, but I think the team is doing a really really good job, but we're never going to rest and if in fact, they stopped we still keep going so it is really important I think it's one of the things that we we decided a number of years ago that we would constantly refresh our products on a.
The regular basis.
And add value on an interim basis, which you've seen with our platinum card in our other products and I think thats really helped us out quite a bit.
Thank you our final question will come from Lisa Ellis of <unk>.
Nathan Please go ahead.
Terrific. Thank you. Thanks for squeezing me and I had a question about international.
26% billed business growth in international really caught my eye because that figure is more than <unk>.
Visa and Mastercard International credit growth was in the fourth quarter.
And so I was hoping to just dig in a little better.
Into what looking at your international business is driving that and how sustainable. It is it looks like it's mostly driven by spending per card card growth is an unusually high so is there a.
I'm trying to understand is I think.
<unk> share gain going on is the acceptance that youre driving it there's something unique about.
The geographic composition of the customer base can you just against that.
Yes.
So Lisa I think it is.
The pre pandemic were pretty close to 20% any way from.
From an international perspective, and look it's a smaller base and visa Mastercard and it's a it's a really high premium customer segment and.
And it's a segment that travels it's a card based it travels quite a bit.
So pre pandemic, we were growing in that 20% range.
And that growth was due to.
A real focus on value proposition and a focus on merchant acceptance I think what youre seeing right now, which is 26% growth, which is slightly outsized growth.
It's still a recovery from the pandemic right I mean, if you think about it this 26% growth quarter over quarter, you still had a lot of Lockdowns people, we're not traveling last last year at this time.
In international and so.
Look where our goal.
Hope is to continue to grow this business as it was pre pandemic around that 20% level, but.
From my perspective, there's really nothing unusual here, we're sticking to our strategy enhancing the value continue to add merchant acceptance and continuing to invest in this segment. These two segments in small business and international consumer card, which we're fast growing pre pandemic. So nothing nothing really unusual.
Okay.
It will probably normalize a little bit.
As the year goes on because people were getting out there and traveling when we got into the second and third quarters.
With that ill bring the call to Nan. Thank you 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.
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 a digital replay of the call at 8776606853 or 20161 to 7415.
Access code 13734, 498 after one P M. Eastern time on January 27th through February 3rd.
That will conclude our conference call for today. Thank you for your participation you may now disconnect.
[music].