American Express profits rise; company plans to cut workforce by 5%
AgenciesAmerican Express profits rose sharply in the third quarter as it transitioned the vast majority of its members to a new, higher-fee Platinum Card while its well-to-do custo...
American Express reported a significant increase in profits for the third quarter, rising by 28% to $3.71 billion, or $5.42 per share. This growth came as the company transitioned most of its members to a new Platinum Card with higher fees, while its affluent customers continued to spend generously. The bank also announced its first major layoffs in nearly a decade, cutting its workforce by 5%, or approximately 3,500 employees.
Despite a one-time gain from selling its stake in Global Business Travel Group, the company's quarterly per-share profit of $4.68 still exceeded Wall Street's expectations.
AmEx's revenue and profits grew due to customers spending more on their cards and paying higher fees to maintain them. Last year, American Express revamped its Platinum Card, adding new benefits and increasing the annual fee from $695 to $895. While Wall Street initially questioned whether the wealthier customers would tolerate the $200 price increase, nearly all of those moved to the higher fee Platinum Card opted to keep it.
The company noted that net card fees, including annual fees on premium cards like Platinum, surged by over $400 million year-over-year.
Moreover, AmEx continues to observe increased spending on its cards. The average AmEx customer spent $6,735 on their cards last quarter, or $2,245 monthly, marking a 5% increase from the previous year. This growth in spending can be attributed partly to inflation and a 10% rise in travel and entertainment expenses. Additionally, the number of transactions per cardholder has increased, reflecting that cardmembers are using their cards more frequently.
American Express CEO Steve Squeri assured investors that the workforce reduction was aimed at enhancing efficiency rather than reflecting a downturn in business. However, concerns have been raised about the company's rising operating costs, as it faces competition from other credit card issuers like Capital One and JPMorgan Chase, who offer perks and rewards that are costly to manage.
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