Executive Summary / Key Takeaways

• Resilient Premium Model Drives Strong Performance: American Express continues to demonstrate robust financial health, with Q3 2025 revenues up 11% year-over-year to a record $18.4 billion and diluted EPS increasing 19% to $4.14. This performance is underpinned by its membership-focused business model, a global premium customer base, and a spend- and fee-centric revenue mix.
• Strategic Product Refreshes Fuel Engagement: The recent refresh of the U.S. Consumer and Business Platinum Cards in Q3 2025 has seen "strong early demand and engagement," exceeding expectations and driving new account acquisitions. This initiative, part of a broader strategy of over 200 refreshes since 2019, reinforces AXP's leadership in the premium segment and appeals strongly to Millennial and Gen-Z consumers.
• Technological Edge and Ecosystem Expansion: AXP's closed-loop network provides deep customer insights, enabling personalized services and targeted marketing. Recent acquisitions like Center ID Corp. and investments in platforms like Kabbage are expanding its technological capabilities in expense management and B2B payments, enhancing its value proposition for SME customers.
• Disciplined Growth and Capital Returns: The company is committed to long-term growth, balancing strategic investments in technology, marketing, and value propositions with disciplined expense management. AXP returned $2.90 billion to shareholders in Q3 2025, maintaining its CET1 capital ratio within the target 10-11% range.
• Outlook and Competitive Strength: American Express raised its full-year 2025 guidance, expecting revenue growth of 9-10% and EPS between $15.20 and $15.50, assuming a stable macroeconomic environment. Despite intense competition, AXP's differentiated brand, superior service, and continuous innovation position it to sustain leadership in the premium payments space.

American Express: Forging a Premium Path Through Innovation and Engagement

American Express Company (AXP) stands as a global payments and premium lifestyle brand, a testament to a 175-year journey from a freight delivery company in 1850 to a technology-powered financial services leader. This evolution, marked by a pivotal shift to a card-focused payments model in the 1960s, has culminated in a "membership-focused business model" that prioritizes a global premium customer base. AXP operates across U.S. Consumer Services (USCS), Commercial Services (CS), International Card Services (ICS), and Global Merchant and Network Services (GMNS), each contributing to its integrated network and strategic vision.

The global payments industry is characterized by "evolving technologies, business dynamics and competition for premium customers." AXP faces formidable direct competitors such as Visa (V), Mastercard (MA), Discover (DFS), and Capital One , alongside indirect threats from fintechs like PayPal (PYPL) and Block (SQ). AXP's strategic response is to leverage its differentiated model, focusing on customer loyalty, exclusive benefits, and superior service rather than competing solely on transaction volume. This approach has allowed AXP to cultivate a high-spending customer base, with Card Members spending "nearly three times more annually on American Express cards than the average spend per card on other networks."

A cornerstone of American Express's competitive advantage is its closed-loop network. This proprietary technology enables direct engagement with both merchants and cardholders, providing "deep insights into customer spending patterns and emerging trends." These insights are crucial for informing product enhancements and targeted marketing efforts. The tangible benefits are evident: AXP can offer personalized services and develop value propositions that resonate deeply with its premium clientele. For investors, this technological differentiation translates into a stronger competitive moat, enhanced customer loyalty, and ultimately, superior financial performance through optimized revenue generation and efficient risk management.

AXP's commitment to technological innovation extends beyond its core network. The company is continuously expanding its digital capabilities, including mobile and online applications, affiliate marketing, and customer referral programs. A significant recent development is the acquisition of Center ID Corp. on April 16, 2025, an expense management software company. This acquisition is a strategic move to build more capabilities for the Commercial Services segment, with plans for integration into the Kabbage platform to create a comprehensive SME ecosystem. This initiative, alongside earlier investments in Kabbage and Nipendo, aims to automate B2B payments and increase AXP's relevance for small and mid-sized businesses. Furthermore, AXP is exploring the role of Stablecoins in payment systems, particularly for cross-border transactions for SMBs and large corporations, viewing itself, Visa, and Mastercard as "off-ramps" for digital currencies. However, management does not believe digital currencies will replace existing payment rails, which offer critical benefits like rewards, lending, dispute resolution, and broad acceptance. The introduction of "amount-based redemptions" and a new app experience for Platinum members further highlights AXP's ongoing R&D to enhance customer engagement and product utility.

Resilient Financial Performance and Strategic Momentum

American Express delivered a strong third quarter in 2025, with total revenues net of interest expense increasing 11% year-over-year to a record $18.426 billion. Net income rose 16% to $2.902 billion, resulting in diluted earnings per common share of $4.14, up 19% from the prior year. This robust performance underscores the effectiveness of AXP's premium strategy and disciplined execution.

Billed business, a key indicator of Card Member spending, accelerated to 9% year-over-year (8% on an FX-adjusted basis) in Q3 2025. This growth was broad-based, driven by strong retail spending, which increased 12%, and a notable rebound in Travel & Entertainment (T&E) spend, up 8%. Restaurant spending, AXP's largest T&E category, continued its strength with 9% growth, while airline spend, which was flat in Q2 2025, picked up to 5% growth in Q3 2025. U.S. Consumer Services billed business grew 9%, largely fueled by Millennial and Gen-Z Card Members, who now represent 36% of total spend. Commercial Services billed business saw 4% growth, reflecting modest but improving trends from U.S. small and mid-sized enterprise (SME) Card Members. International Card Services delivered impressive 14% growth (13% FX-adjusted), with three of its top five countries growing by 18% or more. Overall, transaction growth, a strong indicator of customer engagement, was up 10% in Q3 2025, with younger cohorts showing approximately 25% higher transaction frequency.

Revenue streams demonstrated solid momentum. Discount revenue, AXP's largest revenue line, increased 7%, directly correlating with the rise in billed business. Net card fees, a critical component of AXP's fee-centric model, were up 18% for the three months ended September 30, 2025, and 19% for the nine months ended September 30, 2025, reflecting growth in premium card portfolios. Annual card fees are now approaching $10 billion annually and have achieved double-digit growth for 29 consecutive quarters. Net interest income (NII) grew 12%, driven by increases in revolving loan balances and net yield expansion. Service fees and other revenue also saw elevated growth, partly due to an approximate $80 million gain from an equity transaction by Global Business Travel Group, where AXP holds a significant stake.

Expense management remains a key focus. Provisions for credit losses decreased by 5% in Q3 2025, primarily due to a lower reserve build compared to the prior year, partially offset by higher net write-offs. Net write-off and delinquency rates remained "best-in-class" and stable, a testament to AXP's premium customer base and disciplined risk management. Variable Customer Engagement (VCE) expenses, encompassing Card Member rewards, services, and business development, grew faster than revenues (up 14% in Q3 2025). This accelerated growth reflects strategic investments in value proposition enhancements, such as the expanded U.S. Platinum benefits, and a deliberate mix shift towards premium products. Marketing expense increased 9% year-over-year, supporting the acquisition of 3.2 million proprietary new cards in Q3 2025, with over 70% on fee-paying products. Operating expense growth also reflects ongoing investments in enterprise risk management and technology.

AXP's profitability and returns are strong, with pretax income up 19% in Q3 2025. The effective tax rate increased to 24.10% for the quarter, influenced by the global minimum tax and a California tax law change. Return on average equity (ROE) stood at an impressive 35.90% for the quarter, highlighting the efficiency of its capital deployment.

The company maintains a robust liquidity and capital position. The Common Equity Tier 1 (CET1) ratio remained within the target range of 10-11% at 10.50% as of September 30, 2025. AXP returned $2.90 billion of capital to shareholders in Q3 2025 through share repurchases and common stock dividends. For the nine months ended September 30, 2025, total capital returned was $6.131 billion, representing approximately 74% of net income available to common shareholders. The company's funding strategy emphasizes a diverse set of sources, including a growing direct deposit program with 3.80 million accounts. AXP also maintains significant secured borrowing facilities and a committed syndicated bank credit facility, alongside $79 billion in available borrowing capacity from the Federal Reserve Bank of San Francisco.

Strategic Initiatives and Competitive Edge

American Express's strategic initiatives are deeply intertwined with its competitive positioning. The product refresh strategy is central to its narrative. The Q3 2025 launch of the refreshed U.S. Consumer and Business Platinum Cards, offering "over $3,500 in annual value" and seeing "strong early demand and engagement," exemplifies this. New Platinum account acquisitions ran at twice the level seen before the refresh in the first three weeks, with strong engagement in new benefits and over 500,000 requests for the new mirror card. This strategy creates a "virtuous cycle of growth" by enhancing value propositions, driving customer engagement, attracting world-class merchant partners, and enabling reinvestment.

The company's focus on customer acquisition and engagement is particularly strong among Millennial and Gen-Z cohorts. These younger Card Members are acquired at higher credit quality (average FICO of 750 at acquisition) and exhibit higher engagement, transacting 25% more than older cohorts. AXP aims to grow with these customers as their lives and careers evolve, fostering long-term loyalty.

Global expansion remains a significant growth driver. International Card Services consistently delivers double-digit billed business growth, with AXP actively expanding its merchant coverage. The company has grown its merchant network nearly fivefold since 2017 and achieved an average of 80% coverage across its top 12 international countries by 2024. This expansion is crucial for increasing Card Member utility and driving international billed business, especially in underpenetrated consumer and SME markets.

In Commercial Services, the acquisition of Center ID Corp. and its planned integration with the Kabbage platform are designed to build a comprehensive SME ecosystem. This initiative aims to increase AXP's relevance beyond card products, offering integrated expense management, lending, checking, and cash flow solutions. This directly addresses competition from fintechs like Ramp and Brex, who are making inroads in the SME tech space.

American Express's competitive positioning is defined by its premium brand, integrated model, and customer-centric approach. Against network competitors like Visa and Mastercard, AXP's closed-loop system provides unique data insights and control over the end-to-end customer experience, allowing for highly personalized offerings. While Visa and Mastercard boast greater transaction scale and network breadth, AXP differentiates through loyalty and premium services. Against direct issuers like Discover and Capital One, AXP's global premium focus and "best-in-class" credit metrics stand out. A BofA Securities analyst survey indicated that American Express is "widely viewed as the most premium credit card brand", though JPMorgan Chase (JPM) and Capital One (COF) have "closed this gap" in brand perception. AXP's ability to attract premier partners who co-fund offerings, such as Uber (UBER) and Delta (DAL), further strengthens its value proposition. Stephen Squeri emphasizes that AXP's pricing power is "much more tied to the value that you provide" and that the company avoids complacency through a regular cycle of product refreshes.

Outlook, Guidance, and Risk Assessment

American Express has raised its full-year 2025 guidance, now expecting revenue growth of 9-10% and diluted EPS between $15.20 and $15.50. This updated outlook assumes a stable macroeconomic environment for the remainder of the year. Management's long-term aspirations remain ambitious: 10%+ revenue growth and mid-teens EPS growth. While net card fee growth is expected to moderate in the near term due to the lagged recognition of revenue from product refreshes, an "inflection upward in 2026" is anticipated. Loans and receivables growth is projected to outpace spend, and net interest income (NII) growth is expected to outpace loan growth. Variable Customer Engagement (VCE) expenses are likely to grow slightly faster than revenues due to ongoing investments in value propositions and the portfolio's premium mix shift. Operating expenses are forecast to grow in the low-single-digits, reflecting disciplined management while still investing in technology and enterprise risk management.

Despite this confident outlook, American Express operates within a dynamic risk landscape. Geopolitical and macroeconomic uncertainties, including "tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation," as noted by JPMorgan CEO Jamie Dimon, could impact consumer and business spending. Regulatory scrutiny remains a significant factor, with extensive government regulation and supervision globally. This includes heightened capital and liquidity requirements as a Category III firm, oversight by the CFPB, and payments regulation (e.g., interchange fee caps) that can pressure discount revenue. The company is also engaged in ongoing antitrust litigation and faces risks from increased merchant surcharging. Cybersecurity threats, AML/CFT compliance, and a dispute with the IRS over transfer pricing (involving a proposed $185 million increase to U.S. taxable income and $50 million in penalties for 2017-2018) represent additional challenges. AXP's "differentiated business model," with its premium customer base and spend- and fee-centric revenue mix, is considered resilient to "navigate a range of economic environments."

Conclusion

American Express's Q3 2025 results underscore the enduring strength and strategic efficacy of its premium, membership-focused business model. The company's consistent revenue and EPS growth, driven by accelerating Card Member spending and robust net card fees, reflects successful execution of its product refresh strategy and deep engagement with its affluent customer base, particularly Millennial and Gen-Z cohorts. AXP's technological differentiators, notably its closed-loop network and expanding digital ecosystem for commercial clients, provide a sustainable competitive moat, enabling personalized services and efficient operations.

While the competitive landscape remains intense and macroeconomic uncertainties persist, AXP's disciplined investment approach, strong capital position, and commitment to innovation position it favorably. The raised full-year 2025 guidance and long-term aspirations for double-digit revenue and mid-teens EPS growth highlight management's confidence. Investors looking for a financially robust company with a proven ability to deliver value in the premium payments sector, underpinned by strategic technological leadership and a resilient business model, will find American Express a compelling proposition.