Business Overview

American Express Company (AXP) is a globally integrated payments company with a rich history dating back to 1850. Starting as a freight delivery company, the company has evolved into a leading provider of credit and charge card products, merchant acquisition and processing services, network services, and travel and lifestyle services. With a focus on serving premium consumers and businesses, American Express has built a reputation for trust, security, and exceptional service - attributes that have underpinned its success for over a century and a half.

American Express was founded in 1850 as a joint stock association, initially operating as a freight delivery company that used horses, wagons, and trains. In the early 20th century, the company pivoted to become a global travel services company. By the 1960s, American Express had transitioned to focus primarily on its card-issuing and payments business.

A key milestone in the company's history was its incorporation as a New York corporation in 1965. This allowed American Express to become a bank holding company, subject to supervision and examination by the Federal Reserve. This change facilitated the company's expansion into financial services beyond its traditional travel and payments business.

Throughout its history, American Express has faced various challenges and controversies. In the 1990s, the company was embroiled in an antitrust lawsuit related to its merchant contracts, which ultimately led to changes in its business practices. More recently, in the early 2020s, American Express responded to governmental investigations into its historical sales practices for certain small business customers, ultimately reaching settlements to resolve those matters.

Today, American Express operates through four reportable segments - U.S. Consumer Services (USCS), Commercial Services (CS), International Card Services (ICS), and Global Merchant and Network Services (GMNS). The USCS segment issues a wide range of proprietary consumer cards and provides services to U.S. consumers, including travel and lifestyle services as well as banking and non-card financing products. The CS segment issues proprietary corporate and small business cards and provides services to U.S. businesses. The ICS segment issues proprietary consumer, small business, and corporate cards outside the U.S. and provides international customer services. The GMNS segment operates the company's global payments network, acquires merchants, and provides marketing programs and data analytics.

American Express has a long history of innovation, from the introduction of the first American Express Travelers Cheque to the launch of the iconic green charge card. The company has continued this tradition of innovation, evolving its product offerings and services to meet the changing needs of its premium consumer and business customers. Recent initiatives include refreshing over 40 products globally in 2024, acquiring companies like Tock and Rooam to enhance its dining platform, and partnering with Formula 1 for a multi-year global sponsorship.

Financial Performance

In 2024, American Express reported record revenues of $65.95 billion, up 10% on an FX-adjusted basis. This strong performance was driven by record annual Card Member spending, robust new card acquisitions, and disciplined expense management. The company achieved net income of $10.13 billion, or $14.01 per diluted share, up 25% year-over-year.

American Express has maintained a strong financial profile, reporting a return on equity of 34.6% in 2024. The company's capital ratios also remain robust, with a CET1 ratio of 10.5% as of December 31, 2024, well above regulatory requirements. American Express returned $7.9 billion of capital to shareholders in 2024 through share repurchases and dividends.

Looking ahead, American Express expects revenue growth of 8-10% and earnings per share of $15 to $15.50 in 2025. This guidance reflects the company's confidence in its ability to continue driving sustainable growth by investing in innovative value propositions, marketing, and technology. The EPS guidance represents a 12% to 16% increase over the 2024 adjusted EPS and reflects the impact of the Accertify Gain in 2024. The company noted that if the elevated spending momentum seen in Q4 2024 were to continue throughout 2025, they would expect revenue growth to be closer to the high end of the 8-10% range.

For the most recent quarter, American Express reported revenue of $17.18 billion and net income of $2.17 billion. These results demonstrate the company's continued strong performance and ability to generate significant profits.

Segment Performance

U.S. Consumer Services (USCS) segment saw billed business grow by 7% year-over-year, reflecting continued strength in spending by Millennial and Gen-Z Card Members. Net card fees increased 18% year-over-year, primarily driven by growth in the company's premium card portfolios. Interest income increased, primarily driven by growth in revolving loan balances and higher interest rates.

Commercial Services (CS) segment experienced billed business growth of 2% year-over-year, reflecting continued modest growth from U.S. small and mid-sized enterprise (SME) Card Members. Net card fees increased 12% year-over-year, primarily driven by growth in the company's premium card portfolios.

International Card Services (ICS) segment reported billed business growth of 11% year-over-year (14% on an FX-adjusted basis), driven by continued strong growth in spend across all regions and customer types outside the United States. Net card fees increased 16% (20% on an FX-adjusted basis), primarily driven by growth in the company's premium card portfolios.

Global Merchant and Network Services (GMNS) segment saw discount revenue increase 3%, primarily driven by an increase in billed business, partially offset by lower average merchant discount rates. Processed revenue decreased 2% and increased 4% on an FX-adjusted basis.

Liquidity

American Express maintains a strong liquidity position to support its operations and meet its financial obligations. The company's diverse funding sources, including deposits, long-term debt, and short-term borrowings, provide flexibility and stability. As of the end of 2024, American Express had substantial liquid assets and access to significant credit facilities, ensuring its ability to weather potential economic uncertainties and capitalize on growth opportunities.

The company maintained a committed syndicated bank credit facility of $4 billion as of both December 31, 2024 and 2023, all of which was undrawn as of the respective dates. Additionally, American Express maintained a three-year committed, revolving, secured borrowing facility, with a maturity date of September 15, 2026, which gives it the right to sell up to $3 billion face amount of eligible certificates issued from the American Express Credit Account Master Trust. This facility was also undrawn as of both December 31, 2024 and 2023.

Risks and Challenges

American Express operates in a highly competitive payments industry, facing competition from traditional financial institutions as well as emerging fintech players. The company must continuously innovate and enhance its product and service offerings to maintain its competitive edge and appeal to premium consumers and businesses.

Regulatory changes, such as those affecting interchange fees and network operations, also pose a risk to American Express's business model and profitability. The company closely monitors the regulatory landscape and works to ensure compliance with evolving rules and requirements.

Additionally, as a global company, American Express is exposed to macroeconomic and geopolitical risks that could impact consumer spending and international operations. The company's diversified geographic footprint and focus on premium customers help mitigate these risks, but external factors beyond the company's control remain a concern.

Conclusion

American Express has a long and storied history as a leader in the payments industry. The company's focus on serving premium customers, delivering innovative products and services, and maintaining a strong financial profile have positioned it well for continued growth and success. While the company faces competitive and regulatory challenges, its demonstrated ability to adapt and innovate suggests that American Express is well-equipped to navigate the evolving landscape and capitalize on the significant opportunities ahead.

The company's strong performance across its various segments, coupled with its robust liquidity position and positive outlook for 2025, underscores its resilience and potential for future growth. As American Express continues to invest in its core business and explore new opportunities, it remains a formidable player in the global payments industry.