American Express CEO bullish on small businesses despite slow growth

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Four years after the pandemic hit, many small businesses are still trying to recover, though American Express — which has expanded services in the category — is positioning the softness as an economic trend rather than something that requires a fundamental pivot in the card network's strategy.

"These card members have been through a lot over the last two to three years, are focused on providing the best products and acquiring as many customers as we can," said Amex CEO Steve Squeri during the company's earnings call on Friday morning. "We will be ready when they are ready." 

For the quarter that ended December 31, Amex reported revenue of $15.8 billion, up 11% from about $14.2 billion a year earlier. Profit for the fourth quarter was $2.62 per share, up from $2.07 per share a year earlier. That compared to analysts' projections of $2.64 per share, according to Yahoo. 

U.S. small network payment volume growth, which is about a quarter of Amex's overall volume, grew at 1% in the fourth quarter. "We're not seeing [small to medium-sized enterprises] spend more than they spent the year before," Squeri said. "That is an industry phenomenon more than an Amex phenomenon." 

Small businesses were decimated in the early stages of the pandemic, and more recently have faced other problems such as supply chain glitches, inflation, labor shortages and higher interest rates. Small businesses currently list their top problems as inflation (32%), quality of labor (23%) and taxes (11%), according to Statista. 

"Inventory has built up, and there has been an interest rate shock. Small business is very cyclical," Squeri said. 

Amex sells financial services to small businesses through American Express Business Blueprint, which stems from its Kabbage acquisition in 2020. That enables Amex to compete with smaller banks and firms like Stripe, Block and PayPal. During the various crises of the past few years, Amex has expressed patience for a small-business recovery. 

Card acquisition in the small-business segment has remained strong and credit quality has held up, Squeri said Friday. "I would be more concerned if we weren't acquiring cards or if writeoffs and delinquencies were higher," Squeri said. 

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Amex's other strategies outside of small-business financial services include improving connections to fintechs and expanding its acceptance among merchants outside of the U.S.  For 2024, Amex forecasted earnings per share of between $12.65 and $13.15, higher than analysts' estimates of $12.41. Amex affirmed its forward-looking revenue growth of 10% and earnings per share growth in the mid-teens for 2024. 

For 2023, the company reported revenue of $60.5 billion, up 15% from about $52.5 billion. The full-year revenue for 2023 was a record for the Amex, and the stock was up about 3% before the market opening on Friday. 

While Amex's customers are generally more affluent than other financial institutions and relatively less exposed to economic concerns, the company increased its loan loss provisions in the fourth quarter to $1.44 billion, up from $1.03 billion the prior year. Amex projected this would increase "modestly" in the next year. 

Amex reported delinquencies of 1.38%, which was 5 basis points above Jeffries' estimates of $1.32%. And operating expenses of $11.85 billion were 3.4% below Jeffries estimates. 

"The quarter reflected consistent revenue growth, albeit slightly weaker net revs on slowing billed business and higher deposit costs; combined with normalizing credit trends and lower operating expenses," said Jeffries analysts in a research note. 

"The delinquency rates are still very low versus historical performance," Squeri said. 

Analysts at HSBC reiterated their Buy rating for Amex in a Friday research note.

"We like American Express's attractive economic model, strong competitive position in the premium cards space, and comparatively limited credit and regulatory risk. … A sharper deceleration in billed business and lower-than-expected revenue growth are key downside risks," HSBC analysts said.