American Express (NYSE: AXP) reported fiscal second-quarter earnings that topped analyst expectations, but a sharp rise in costs tied to its younger customer base weighed heavily on the stock Friday morning. Shares fell more than 5% in early trading as investors focused on the expense side of the ledger.
The credit card giant posted earnings per share of $4.53, an 11% increase year-over-year, while revenue climbed 10% to $19.6 billion. Both figures exceeded Street estimates. However, total quarterly operating expenses surged 12% year-over-year, driven largely by a 50% jump in card member services costs—the line item that covers travel credits, lounge access, dining stipends, and other premium perks.
Younger cardholders drive engagement—and costs
American Express added 3 million new proprietary cards during the quarter, with more than three-quarters opting for high-margin, fee-based accounts. A significant portion of those new accounts came from Gen Z and Millennial consumers, a demographic the company has aggressively courted through refreshed Platinum and Gold card offerings.
While younger cardholders are highly engaged—average spending per card rose to $6,759 from $6,393 a year ago—they are also actively maximizing every benefit attached to their accounts. Airport lounge visits, hotel credits, and dining stipends were claimed at record volumes, pushing customer engagement and variable reward costs higher than anticipated.
“The strategy of attracting younger, tech-savvy customers has succeeded in driving card growth, but funding those lifestyle perks is proving more expensive than expected,” said one analyst. The dynamic is creating a double-edged sword for American Express: higher engagement and spending, but also higher fulfillment costs that compress margins.
Expense growth overshadows credit quality
Net write-offs remained comfortably low at 2% in the second quarter, indicating that credit quality remains pristine. Yet the market’s focus has shifted to the cost side. The 12% expense increase came as financial firms across the sector are under pressure to tighten spending, making American Express’s accelerating expenditure a point of concern.
Management raised its full-year revenue growth outlook to approximately 10%, citing strong first-half momentum. However, the company notably left its earnings per share forecast unchanged at $17.30 to $17.90, signaling that profit growth may not keep pace with revenue expansion. This cautious guidance contributed to the negative market reaction.
For context, American Express shares are down more than 13% year-to-date, underperforming the broader market. The stock’s decline reflects growing unease that if younger consumers continue to fully utilize their perk allowances while broader macroeconomic spending cools, expense growth could persistently outpace transaction volume gains.
Competitive landscape and Wall Street view
American Express is defending its turf against rivals such as JPMorgan Chase and Capital One, which have also been enhancing their premium card offerings. The company’s investment in perks is partly a response to that competitive pressure, but the cost implications are becoming harder to ignore.
Wall Street has not abandoned the stock entirely. Heading into the earnings report, the consensus rating on American Express was Overweight, with a bullish average price target of $378. Some analysts see the current pullback as a buying opportunity, arguing that the long-term value of the younger customer base will eventually outweigh near-term cost pressures.
For investors, the key question is whether American Express can manage the expense trajectory without losing its competitive edge. The company’s ability to balance premium benefits with margin discipline will be critical in the quarters ahead. As the broader market digests mixed signals from the financial sector, including recent moves in dow futures and options activity around Amex, the focus remains on how effectively the company can monetize its younger, perk-hungry cardholders.
This article is for informational purposes only and does not constitute financial advice.
