AXP Financial Analysis

Analysis Date: 1/25/2025

Business Model

American Express generates revenue through discount revenue (merchant fees), net card fees, net interest income, service fees and other revenue, and processed revenue.

Revenue Sources

• Discount Revenue: Fees charged to merchants when cardholders spend using American Express cards.
• Net Card Fees: Fees charged to cardholders for various card products and services.
• Net Interest Income: Income earned from loans and receivables, net of interest expenses.
• Service Fees and Other Revenue: Includes travel commissions, foreign exchange related revenues, loyalty coalition-related fees, and revenue from the sale of reward points.
• Processed Revenue: Revenue from transaction volumes on cards issued under network partnership agreements.

Income Statement Analysis

• Total Revenues Net of Interest Expense increased by 9% year-over-year, driven by strong Card Member spending, higher net interest income, and accelerated card fee growth. (Pro)
• Discount Revenue increased by 6.9% year-over-year, indicating healthy billed business growth. (Pro)
• Net Card Fees saw a significant increase of 18.4% year-over-year, driven by growth in premium card portfolios. (Pro)
• Net Interest Income increased by 12.2% year-over-year, supported by growth in revolving loan balances. (Pro)
• Total Expenses increased by 11.4% year-over-year, primarily driven by higher variable customer engagement costs and marketing investments. (Con)
• Marketing expenses increased significantly by 30.9% year-over-year, reflecting higher spending on customer acquisition and growth initiatives. (Neutral - could be pro if effective, con if not)
• Operating Expenses decreased slightly by 1.2% year-over-year, indicating some expense control in this area. (Pro)
• Provisions for Credit Losses decreased by 10.1% year-over-year, primarily driven by a lower net reserve build. (Pro)
• Net Income increased by 12.3% year-over-year, demonstrating strong profitability growth. (Pro)

Capital Allocation

American Express plans to increase its quarterly common stock dividend by 17% to $0.82 per share starting in Q1 2025. In FY 2024, they returned $7.9 billion in capital, including $5.9 billion in share repurchases and $2.0 billion in dividends. Management is focused on investing in premium value propositions, coverage, marketing, technology, and talent to drive long-term growth.

Management Commentary

2024 was another strong year for American Express. We delivered record revenues of $65.9 billion, up 10 percent on an FX-adjusted basis, record net income of $10.1 billion, and earnings per share of $14.01, up 25 percent year-over-year.

We exited the year with increased momentum, with billings growth accelerating to 8 percent in the fourth quarter.

For the full year 2025, we expect revenue growth of between 8 to 10 percent and EPS in the range of $15.00 to $15.50, and we plan to increase our quarterly common stock dividend by 17 percent.

Consolidated expenses were $13.1 billion, up 11 percent year-over-year. The increase was driven by higher variable customer engagement costs and marketing investments.

Overall Sentiment: Positive. Management expresses confidence in sustaining strong momentum and delivering future growth, driven by opportunities in premium customer segments and operating expense leverage. The outlook for 2025 is positive with expected revenue and EPS growth.

Recommendation

Rating: Buy

Reason for Rating: American Express delivered a strong Q4 and FY 2024 with record financial performance and positive future guidance. The company is effectively growing revenue and net income, driven by its premium brand and customer engagement strategies. The planned dividend increase and consistent capital return to shareholders are also attractive.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/25/2025, 3:02:36 AM