American Express: A Dip in Marketing Spend and New Card Acquisitions

In the ever-evolving world of finance, even the giants must adapt to the changing tides. American Express, a leading card issuer, recently made headlines when it issued fewer than 3 million new cards during the third quarter. This marked a significant change from their previous performance, which had seen them consistently surpass the 3 million mark in recent quarters. 
In this article, we delve into the details of this shift and the strategies American Express is employing to maintain its competitive edge.

Marketing Spend Takes a Dip

American Express reported a 15% decrease in marketing spending during the third quarter, reducing it to $1.2 billion. This decline followed a second-quarter spend of $1.4 billion. Amex CEO Steve Squeri assured analysts that the company plans to revamp its marketing efforts in the fourth quarter, committing to an annual expenditure of approximately $5.5 billion on marketing.

A Glimpse into the Numbers

The numbers presented in Amex's third-quarter earnings report raised eyebrows in the financial sector. The company's marketing budget for the full year of 2023 closely mirrored the 2022 figures, as indicated in the Q4 2022 earnings materials. However, Steve Squeri hinted at an increase in marketing expenditure for the coming year.

Amex's Response

Amex's management didn't seem too concerned about the drop in marketing spend or new card acquisitions. Squeri attributed this decrease to factors like timing and the length of the quarter. He emphasized the company's commitment to acquiring new cards as long as opportunities exist, downplaying any significant cause for concern.

Strategic Outlook

Squeri views marketing and operating expenses as essential leverage for the company's future success. In a fiercely competitive premium credit card market, American Express has been targeting millennials and Gen Z customers. Squeri pointed out that new card acquisitions, rather than card fee increases, are the primary driver of fee-generated revenue for Amex.

The Millennial and Gen Z Focus

The strategy to attract millennials and Gen Z customers seems to be bearing fruit. Spending by these demographic segments increased by 18% in the third quarter compared to the same period the previous year. Impressively, these customers contributed to about 60% of Amex's new customer account acquisitions worldwide. This focus on the younger generation reflects Amex's commitment to adapting to evolving consumer preferences.

Commercial Side Performance

While Amex's focus on younger customers has been fruitful, the picture is different on the commercial side. Spending by U.S. small and medium-sized business customers grew by just 2% in the quarter. Similarly, spending by U.S. large and global corporation customers remained flat.

Financials in Review

The quarter saw a 7% rise in total expenses, reaching $11 billion, as disclosed in a news release. Net income, however, experienced a substantial increase, climbing by 30% to $2.5 billion. Furthermore, revenue, net of interest expense, jumped by 13% to $15.4 billion, painting a mixed picture of Amex's overall financial health.

Closing Thoughts

American Express is navigating through shifting tides, with a dip in marketing spend and new card acquisitions. However, the company's unwavering commitment to innovation, a focus on younger customers, and a dedication to marketing expenditure expansion are the strategies they aim to capitalize on. As the financial landscape evolves, Amex is poised to continue adapting to ensure its position as a key player in the industry.

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