Profits Up, But Revenue Down at AmEx as COVID Reduces Travel, Dining, Shopping

Thursday, August 5th, 2021

American Express witnessed its Q1 profits go up sharply while recording a significant drop in revenue as fewer shoppers used their credit cards and holders with balances cleared their debts.

The NY-based company announced profits of $2.24 billion, or $2.74 per share, up from $367 million, or 41 cents per share, in the same period last year. 

Quarter-one results included a one-off $675 million benefits from the payment firm’s debt-loss reserves. Like most of its competitors, AmEx held back funds to cater to possible bad debts during coronavirus. However, as the economy gets better, the funds are being released and disbursed to shareholders.

Minus these one-off results, AmEx’s earnings stood at $1.74, to surpass analyst estimates of $1.61 a share, according to FactSet.

The company’s foothold shook amid COVID, with only a few US citizens touring places, eating in restaurants, or shopping in physical stores. Spending on personal and business credit cards has dipped, and those with balances have cleared their debts.

Revenues at American Express reduced 12 percent from 2020. Cardmember spending on the American Express’s network also dipped 6 percent from a year ago, though it has been making a comeback. AmEx receives a fee for every transaction initiated through its network, much like other financial services, e.g., Mastercard.

Loans to Cardmembers with balances dropped by 10 percent. Before COVID, the firm had restructured its service offering to enable more of its customers to carry balances, a move that would eventually invite significant interests. 

This was an upgrade from AmEx’s old business model that hinged on its green, gold, and platinum cards that users settled every month.

Still, AmEx managed to hold most of its loyal clients amid COVID. The average number of cards in use was almost similar to last year. According to AmEx’s Chief Executive Stephen Squieri, the firm plans to focus more on recruiting new or former customers as the economy recovers. 

Final Words

According to recent economic reports, US citizens are more willing to resume travel and spending. As a result, Amex is looking at higher profits in the long run.

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