AmEx Gets Younger, More Blue Collar

What do plumbers and Gen Zers have in common? Both are spending money right now.

Investors seem a bit concerned about credit cards. After surging for much of the year, share prices of card companies have mostly fallen or underperformed the broader bank sector since the start of earnings season in mid-October.

The cautious stance on the group might be traced back to JPMorgan Chase’s earnings, when the bank noted a jump in marketing spending on cards that weighed on its revenue rate. That signaled that competition for customers could be intensifying, which could diminish any upside from a rebound in lending.

But American Express AXP -1.88% defied the gloom, sending its shares 5.4% higher on Friday following its earnings report. One driver might have been its exposure to small-business activity. Small enterprises in businesses such as auto repair, home construction or plumbing can also be beneficiaries of tight markets, with more pricing power. The fact that supplies might cost more isn’t bad news for card volumes, either.

AmEx said that card acquisitions hit a record level in the third quarter for U.S. small-business and consumer Platinum and Gold cards. The company noted that goods-and-services spending by global small- and medium-size enterprises in the third quarter was 21% above the same period in 2019, before the pandemic, compared with a 4% currency-adjusted rise for billed business overall.

Large and global corporate-card spending, historically driven by travel and entertainment, “continued to show fewer signs of recovery,” the company said.

Consumer activity is bifurcated as well. American Express said that spending by millennial and Gen Z consumers was up 38% in the third quarter over 2019. Younger people, perhaps less encumbered by health concerns and travel restrictions, are spending.

AmEx has also refreshed Platinum benefits to include more digital entertainment, online shopping and fitness-related rewards. Of the new U.S. consumer Platinum and Gold card members added during the quarter, 75% were from Gen Z and millennial customers.

But “our boomers are not back,” the company said, with third-quarter spending down 6% from 2019 among baby-boomer and older customers.

Investors should still be mindful about how much any growth is costing card companies right now. AmEx reported that its marketing expenses were up 26% year-over-year in the quarter, and variable card-member engagement expenses—such as the cost of rewards—were up 53%.

But the company also said it is starting to increase efforts to acquire new customers, while winding down “value injection” spending on temporary incremental card benefits when people didn’t need travel benefits as much.

There is going to be a big race to capture spending and borrowing as travel bounces back, both among card companies and upstart rivals like installment lenders. For now, though, AmEx seems to be finding growth without a ruinous price tag.

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