American Express Earnings: Strong Travel Spending and Card Fees Offset Weakness in Commercial Cards

Wide-moat-rated American Express AXP reported decent second-quarter results that were modestly above our expectations, thanks to strong travel spending and net interest income growth. Net revenue increased 12% to $15.05 billion, and earnings per share increased 12% to $2.89. While year-over-year revenue growth did decelerate from the first quarter, this was expected as American Express is no longer benefiting from easy comparisons with pandemic-affected results. As we incorporate the strong loan growth and new card signups this year into our model, we anticipate that our $169 fair value estimate may rise by a mid-single-digit percentage. We still expect to view the shares as roughly fairly valued after the update, however.

Discount revenue—the transaction fees American Express charges merchants when they accept its card—increased 8% from last year to $8.5 billion. Travel spending led the way again, rising 14% companywide versus 6% for general goods and services, as macroeconomic concerns do not appear to be affecting the travel or spending plans of American Express’ cardholders. However, commercial spending on the company’s cards grew only 2% over last year as consumers’ resilient spending patterns do not appear to extend to U.S. small businesses.

Net card fees increased 21% year over year as American Express continues to see significant success in marketing its premium luxury cards. The average fee per card increased to $91 from $81 in the year-ago period, while the number of proprietary cards in force increased 7% year over year to 79 million. The value of this cardholder growth extends beyond just net card fees; a growing premium cardholder base creates a virtuous cycle for American Express as its increasingly large, affluent cardholder base encourages the company’s merchant partners to offer benefits to its cardholders, which makes it easier for the firm to further expand its cardholder base.