American Express (AXP) Q1 2023: International Card Services Surge 29% as T&E Drives Global Rebound
International card services led American Express’s record-setting quarter, with T&E spend up sharply and millennial and Gen Z cohorts now driving a third of U.S. volumes. Stable credit metrics, disciplined cost management, and robust card fee growth underpin confidence in full-year guidance. Management’s focus on premium products and global expansion signals durable momentum despite mixed macro signals.
Summary
- Millennial and Gen Z Cohorts Expand: Younger cardholders now drive 30% of U.S. spending, fueling premium product growth.
- International Card Services Outpace: Reorganization and pent-up T&E demand accelerated global billings and card acquisitions.
- Cost Leverage and Credit Quality Hold: Operating expenses and credit losses remain well-controlled, supporting long-term growth targets.
Business Overview
American Express is a global payments and financial services company, earning revenue primarily from card member spending (discount revenue, fee paid by merchants per transaction), annual card fees, interest income on card balances, and service fees. Its major segments include U.S. Consumer, U.S. Small and Midsized Enterprises (SME), International Card Services, and Commercial Services (large/global corporates). The business model is spend-centric, focusing on acquiring high-value card members who deliver recurring fee and transaction revenue, with a growing emphasis on premium products and global expansion.
Performance Analysis
American Express delivered record quarterly revenues, with international card services and travel and entertainment (T&E) spend as standout contributors. International billings grew 29% year-over-year (FX-adjusted), outpacing other segments as pent-up demand and improved merchant acceptance unlocked new growth. T&E volumes surged 39% globally, with restaurant and travel bookings hitting all-time highs. The U.S. consumer segment saw 16% billing growth, led by millennials and Gen Z, whose spending rose 28% and now accounts for 30% of U.S. volumes—a structural shift in the cardholder base.
Despite some signs of moderation in U.S. SME goods and services spend, overall billed business reached record levels in March. Net card fee revenue rose 23%, supported by 3.4 million new cards acquired—70% on fee-based products. Credit metrics remained best-in-class, with reserve rates and write-offs still below pre-pandemic levels. Operating expenses and marketing spend were tightly managed, tracking to full-year targets and enabling margin leverage as revenues scale.
- International Card Acceleration: Organizational changes and expanded merchant coverage fueled the 29% international billing growth and 58% T&E rebound.
- Premium Product Uptake: Over 70% of new accounts are on fee-based products, driving higher recurring revenue and stickier customer relationships.
- Credit Quality Resilience: Write-off and delinquency rates remain below pre-pandemic levels, supporting stable provision expenses and reserve ratios.
The quarter’s breadth of growth—across geographies, customer types, and revenue streams—supports management’s reaffirmed full-year guidance. Cost discipline and the ability to attract higher-spending card members are key levers for sustaining momentum.
Executive Commentary
"Our plan calls for quarterly EPS to grow sequentially through the year as our revenue growth continues. Build business was up 16% globally year over year on an FX adjusted basis. T&E spending was up 39% year over year on an FX adjusted basis due to the grow over effect through the grow over benefit from the impact of the Omicron variant in last year's results."
Steve Squary, Chairman and CEO
"Total network volumes and billed business were both up 16% year over year in the first quarter on an FX-adjusted basis. Given that most of our spending categories have fully recovered versus pre-pandemic levels, we saw the more stable growth rates we expected this quarter... Our largest segment, U.S. consumer, grew billing 16% in the first quarter, accelerating a bit above last quarter's growth."
Jeff Campbell, Chief Financial Officer
Strategic Positioning
1. Premium Cardholder Acquisition and Generational Relevance
American Express’s focus on premium, fee-based products is yielding tangible results, with 70% of new accounts globally on fee products and millennials/Gen Z accounting for 60% of new consumer cards. This demographic shift is driving higher spending and future revenue durability, as younger cohorts become a larger share of the base.
2. International Business Reorganization
The consolidation of international consumer, SME, and corporate teams has increased agility, improved marketing efficiency, and enabled holistic market approaches. Merchant coverage expansion and pent-up T&E demand have re-established international as the fastest-growing segment, with broad-based strength across Europe, Asia, and Latin America.
3. Spend-Centric Model and Fee Revenue Diversification
American Express’s business model relies on driving high-spending, fee-paying card members who generate recurring revenue streams, including discount revenue, card fees, and interest income. The company’s ability to cross-sell premium features and offer flexible payment (e.g., Pay Over Time) deepens engagement and wallet share.
4. Credit Risk Management and Capital Strength
Credit metrics remain best-in-class, with reserves at 2.5% of loans and card receivables, below pre-pandemic levels. The company’s strong capital and liquidity positions enable continued investment and shareholder returns, with a CET1 ratio of 10.6% and robust buyback capacity.
5. Operational Efficiency and Cost Control
Marketing and operating expenses are being managed to grow slower than revenues, maintaining margin leverage. The company is leveraging scale to drive efficiency, with operating expenses expected to remain flat for the year, supporting profitability as revenue expands.
Key Considerations
This quarter’s results underscore the importance of generational and geographic diversification, premium product focus, and disciplined execution in sustaining growth. Investors should weigh the following:
Key Considerations:
- Millennial and Gen Z Spending Shift: Younger cohorts now drive a third of U.S. spending, accelerating premium product adoption and raising long-term revenue potential.
- International Rebound Momentum: International card services are outpacing U.S. growth, aided by strategic reorganization and improved merchant coverage.
- Credit and Provisioning Discipline: Reserve rates and credit losses remain below industry averages, supporting stable risk-adjusted margins.
- Cost Management as a Lever: Marketing and operating expenses are being tightly controlled, providing margin expansion as scale increases.
Risks
Macroeconomic uncertainty remains a key risk, with potential for slower consumer and SME spending, especially in goods and services. While T&E momentum continues, normalization could temper growth rates. Competitive threats from fintechs and big tech entrants are ever-present, requiring constant innovation in value propositions. Interest rate volatility and regulatory changes could also impact profitability and capital requirements, though current hedges and capital levels provide buffers.
Forward Outlook
For Q2 2023, American Express guided to:
- Sequential earnings per share growth as revenue momentum continues
- Continued high single- to double-digit revenue growth across segments
For full-year 2023, management reaffirmed guidance:
- Revenue growth of 15% to 17%
- EPS between $11.00 and $11.40
Management highlighted several factors that support outlook:
- Strong demand for premium products and robust card fee growth
- Resilient credit performance and stable cost structure
Takeaways
American Express’s broad-based growth, led by international and premium segments, demonstrates the effectiveness of its spend-centric, fee-driven model.
- International and T&E Outperformance: Sustained T&E demand and international rebound are driving outsized growth, offsetting U.S. SME moderation.
- Premium Cohort Expansion: Younger, higher-spending cardholders are reshaping the base and supporting long-term revenue durability.
- Cost and Credit Leverage: Operational discipline and best-in-class credit underpin confidence in achieving full-year targets, with further upside as normalization continues.
Conclusion
American Express’s Q1 results reflect a business firing on multiple cylinders—international, premium, and younger demographics—all while maintaining cost and credit discipline. The company’s reaffirmed guidance and visible growth levers set a constructive tone for the rest of 2023, with strategic investments in global reach and product innovation positioning AXP for durable outperformance.
Industry Read-Through
American Express’s results highlight the ongoing global normalization of travel and entertainment spend, with pent-up demand still driving outsized growth, especially outside the U.S. Competitors in payments, banking, and fintech should note the accelerating shift toward premium, fee-based products and the rising influence of millennial and Gen Z customers. The call also signals that cost discipline and risk management remain differentiators in an environment of macro uncertainty. For the broader financial services sector, expansion of merchant networks and digital experiences will be key to sustaining share as consumer preferences evolve.