What's going on?
American Express (Amex) reported impressive quarterly results on Friday.
What does this mean?
Maybe unplanned delays aren’t so off-putting when you can spend them in a snazzy members’ lounge: Amex said spending on global travel and entertainment surpassed pre-pandemic levels for the first time last quarter – despite mass cancellations and delays at airports. That – plus healthy spending by Amex customers across the board – helped boost the value of transactions made on its network up to nearly $400 billion. And in turn, that contributed to upping revenue by a better-than-expected 31% versus the same time last year, enough to hit a new record.
So sure, Amex paid higher costs when all those vacationers made use of their travel perks, but the company’s overall profit still came in higher than expected. And it looks like it’s expecting that to continue: the credit card giant upped this quarter’s forecasted revenue growth from 20% to 25%, and announced plans to spend more on marketing to attract even more customers. Investors couldn’t complain: they initially sent Amex’s stock up 7%.
Why should I care?
The bigger picture: Thanks, inflation.
Credit card companies like Amex have generally benefited from the record high inflation in the US. After all, stores pay them a percentage of the purchase price every time a customer uses their card, so higher prices mean bigger payments. Thing is, some analysts believe those higher prices will eventually prevent a bunch of customers from paying back their debts. Seems like Amex agrees: it put aside $410 million last quarter to cover any losses.
Zooming out: Finally, some good news.
Still, there’s a chance that some of those inflation pressures will let up soon. Russia and Ukraine agreed a deal on Friday that’ll allow Ukraine to start exporting grain again, with a goal of meeting pre-war levels in the coming weeks. And since Ukraine is one of the world’s biggest grain exporters, the agreement could help bolster global supply, cool down prices, and help prevent famine in developing countries.