American Express announces the new platinum business card.
Courtesy: American Express
American Express We see that even for a provider of credit cards aimed at the wealthy, it is advantageous to focus on the biggest players.
The company recently shifted its marketing investments to its refreshed Platinum card, which has an $895 annual fee, and moved away from no-fee cash back cards, CEO Stephen Squeri told analysts Friday after the company reported its fourth-quarter results.
This helps increase overall spending levels as premium consumers continue to thrive, a tactic that leads to both increased revenue from premium cards and fewer defaults, executives said.
“We have the ability… to be really flexible in our marketing investments, and we’ve seen a huge demand for premium products, particularly the Platinum card,” Squeri said.
“The overall portfolio is gradually becoming more premium [as] the Platinum portfolio is growing at a very rapid rate,” he added.
AmEx’s change in strategy is the latest example of the so-called “K-shaped” U.S. economy, in which wealthy consumers continue to spend freely while others control their spending. Data from the card company shows that demand for premium products and luxury experiences is accelerating, while purchases in more basic categories are growing at a slower pace.
Spending at luxury retailers jumped 15% in the quarter, purchases of business and first class airline tickets rose 9% and spending at luxury hotels increased 12%, Chief Financial Officer Christophe Le Caillec told CNBC in an interview.
Meanwhile, airline and general lodging spending increased 3% and 5%, respectively, during the quarter, showing that wealthier cardholders are driving results.
Slowing card growth
The comment helped allay analysts’ fears that the relaunch of the pricey Platinum card last fall had not gone well.
AmEx announced Friday that new card accounts reached 2.9 million at the end of the year, a decline from the third quarter and the lowest figure in the last five quarters, as the company focused on its most profitable card products.
“We are increasingly concerned that the Platinum card refresh will not generate much traction,” said BTIG analysts led by Vincent Caintic, citing new competition from other card issuers and consumer fatigue with high fees and cumbersome benefits.
While the company doesn’t disclose total cardholder numbers, including for the Platinum card, Squeri told analysts Friday that “all the metrics we look at speak to the fact that this is an extremely successful product launch.”
Still, AmEx shares were down about 3.5% at midday after the company’s results and guidance disappointed some.
Earnings per share of $3.53 was a penny below the consensus estimate, according to LSEG.
That was due in part to higher-than-expected spending of $14.5 billion due to Platinum refresh costs, the company said.
“If there is a problem, it may be that Q4 clearly shows the cost of the Platinum refresh, but does not show a corresponding increase on new accounts,” Truist analyst Brian Foran wrote in a research note.