- Despite the spike in credit card spending, American Express shares fell 5% due to unchanged annual profit forecast.
- Millennials and Gen Z, the fastest-growing customer base, have boosted spending by 21% year-over-year in the U.S.
- Rising borrowing costs have prompted AmEx to increase provisions for credit losses to $1.2 billion, bracing for potential debt defaults.
Despite the exceptional surge in consumer spending on American Express credit cards, the company opted to retain its annual profit prediction, leading to a market shockwave that witnessed its shares plunging by 5% this Friday.
Even amidst robust spending trends, particularly on travel and entertainment, the company's financial outlook echoes a tone of caution that has analysts suggesting an impending deceleration. Edward Jones analyst, Kyle Sanders, highlighted the strength of the results but acknowledged the inevitable slowdown from the unsustainable heights reached in 2022.
This apprehension somewhat overshadowed an otherwise stellar quarter where consumer expenditure hit an astounding $426.6 billion. This spike was maintained despite the U.S. central bank's swift increase in interest rates signaling an end to the era of effortless money.
CEO Stephen Squeri painted a hopeful picture for the company's evolving customer base, emphasizing the rise of Millennial and Gen Z cardholders who are expected to contribute significantly to the company's growth. Interestingly, combined spending by these younger demographics increased by a whopping 21% within the U.S from the previous year. However, an increase in borrowing costs has forced AmEx to raise its provisions for credit losses to a hefty $1.2 billion, anticipating potential debt repayment defaults.
Though these provisions are seen as a minor hindrance by RBC Capital Markets analysts, they still recognize the robust fundamentals displayed in Q2. Jeff Campbell, the Chief Financial Officer, confidently reiterated the remarkable strength across all customer demographics and geographies. Yet, the company has chosen to retain its per-share profit forecast of $11 to $11.40 for 2023, despite beating the market with a profit of $2.89 per share.
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