American Express Co. Fiscal Year 2024 Annual Report: A Detailed Summary

Curious about American Express's performance? This summary distills their Fiscal Year 2024 annual report into plain language, providing potential investors with a clear, concise overview.

Business Overview

American Express Company operates as a globally integrated payments company. It empowers customers with products, insights, and experiences that enrich lives and foster business success. The company's core offerings include charge and credit cards, supported by its global payments network. American Express organizes its operations into three main segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services. The company primarily earns revenue from discount fees charged to merchants, annual card member fees, and net interest income from loans.

Overall Financial Performance: A Year of Growth

American Express delivered strong financial results in Fiscal Year 2024. Robust card member spending and loan growth significantly boosted total revenue. Net income also rose substantially, leading to solid earnings per share (EPS) for shareholders. The underlying business drivers clearly show a positive trend.

Key Revenue Drivers (Fiscal Year 2024 vs. 2023)

Amex achieved healthy growth across its primary revenue streams:

• Merchant Discounts: The fees Amex charges businesses for card transactions grew by a solid 6.8%, reaching $34.7 billion in 2024, up from $32.5 billion in 2023. This growth reflects increased card usage and transaction volumes.
• Card Member Fees: Annual fees and other card member charges increased by 8.5%, reaching $17.9 billion compared to $16.5 billion last year. This demonstrates strong demand for premium products and effective card member retention.
• Net Interest Income: Growth in card member loans and receivables significantly boosted net interest income, contributing substantially to overall revenue.
• Other Financial Services: This category, which includes foreign exchange services, travel-related revenue, and other ancillary offerings, increased by 5.9%, growing from $1.7 billion to $1.8 billion.

Loan Portfolio Expansion and Credit Quality

Lending forms a core part of Amex's business, and its loan portfolio expanded notably:

• Card Member Receivables (Short-term balances): Card member receivables (short-term balances, typically paid off quickly) grew by nearly 10%, reaching $159 billion in 2024, up from $145 billion.
• Cardmember Loans (Longer-term balances): Card member loans (longer-term balances) increased by about 8.4%, reaching $168 billion, compared to $155 billion last year.
• Other Loans: Other loans, potentially including business financing or specialized lending, rose by 7.7%, growing to $14 billion from $13 billion.

Credit Quality – Monitoring the Trends: As lending increased, monitoring credit quality became vital. We observed a slight uptick in several key indicators:

• Net Write-Offs: For consumer card member loans, the principal write-off rate slightly increased from 2.5% last year to 2.7% this year. Including interest and fees, this rate rose from 2.8% to 3.0%. Small business loans also saw a similar slight increase in write-off rates.
• Loans 90+ Days Past Due: Consumer card member loans seriously overdue (90 days or more) increased from $1.6 billion last year to $1.8 billion this year. Similarly, consumer card member receivables (shorter-term balances) 90+ days past due rose from $1.2 billion to $1.3 billion.

While these increases are slight and remain relatively low compared to the total loan book, they require continued attention, especially in a dynamic economic environment.

Operating Expenses and Profitability

Operating expenses, encompassing marketing, technology investments, and employee compensation, grew in line with or slightly below revenue growth. This indicates effective cost management and contributed to improved operating leverage and profitability.

Company's Financial Foundation and Shareholder Returns (Financial Health)

• Retained Earnings: The profit the company has accumulated over time, rather than distributing, grew from $39 billion last year to $42 billion this year. This strengthens Amex's financial base and provides capital for future growth and investments.
• Common Stock & Additional Paid-in Capital: These accounts remained stable, reflecting consistent capital structure management.
• Capital Ratios: Amex maintained strong capital ratios, demonstrating financial resilience and the ability to absorb potential losses.
• Debt Profile: The company maintains a diversified funding profile, using various sources such as deposits, long-term debt, and commercial paper. Amex's strong capital ratios and access to diverse funding markets support its liquidity and financial flexibility.
• Cash and Liquidity: American Express maintains a robust liquidity position, featuring significant cash and cash equivalents, readily marketable investment securities, and access to committed credit facilities. This strong liquidity profile ensures the company can meet its financial obligations, fund operations, and support business growth even under various market conditions.
• Shareholder Returns: The company continued returning capital to shareholders through dividends and share repurchases, reflecting confidence in its financial health and future prospects.

Strategic Priorities for Growth (Future Outlook)

American Express focuses on several key strategic initiatives to drive future growth:

• Expanding Premium Card Offerings: Continuing to innovate and enhance benefits for its high-value card members.
• Digital Transformation: Investing in technology to improve the customer experience, streamline operations, and enhance data analytics capabilities.
• Global Expansion: Growing its presence and card member base in key international markets.
• Merchant Network Growth: Expanding acceptance globally and strengthening relationships with businesses.
• Loyalty Programs: Enhancing its Membership Rewards program to drive engagement and retention.

Competitive Position

American Express operates within a highly competitive global payments industry. Its integrated business model—functioning as a payment network, card issuer, and merchant acquirer—provides competitive advantages, enabling end-to-end control and a differentiated customer experience. The company primarily targets affluent consumers and small to medium-sized businesses with premium products and services. It leverages strong brand recognition, an extensive global merchant network, and its highly valued Membership Rewards loyalty program. While facing competition from traditional banks, other payment networks (Visa, Mastercard), and emerging fintech companies, American Express differentiates itself by focusing on superior service, benefits, and tailored offerings for its target customer segments.

Key Risks to Consider

Beyond credit quality, investors should consider other potential risks:

• Economic Downturns: A significant economic slowdown could impact consumer spending, loan defaults, and overall business performance.
• Competitive Landscape: Intense competition from other payment networks, banks, and fintech companies.
• Regulatory Changes: Evolving regulations in the financial services and payments industries could impact operations and profitability.
• Cybersecurity Threats: The risk of data breaches and cyberattacks remains a constant concern for financial institutions.
• Interest Rate Fluctuations: Changes in interest rates can affect net interest income and funding costs.

Outlook for the Future

Management expressed continued optimism for the upcoming fiscal year, projecting sustained revenue growth and solid earnings per share. This outlook is driven by ongoing momentum in card member spending and loan growth.

Overall Takeaway:

American Express demonstrated strong performance in Fiscal Year 2024, achieving robust growth in revenue, loans, and profitability. While credit quality indicators showed a slight uptick, they appear manageable within the context of overall growth. The company's strategic focus on premium customers, digital innovation, and global expansion positions it for continued success. Investors should closely monitor economic conditions, credit trends, and competitive dynamics.