American Express Company (AXP) Q4 2022 Earnings Call Transcript

American Express Company (NYSE:AXP) Q4 2022 Earnings Conference Call January 27, 2023 8:30 AM ET

Company Participants

Kerri Bernstein – Head, Investor Relations

Steve Squeri – Chairman and Chief Executive Officer

Jeff Campbell – Chief Financial Officer

Conference Call Participants

Ryan Nash – Goldman Sachs

Sanjay Sakhrani – KBW

Betsy Graseck – Morgan Stanley

Mark DeVries – Barclays

Mihir Bhatia – Bank of America

Brian Foran – Autonomous Research

Rick Shane – JPMorgan

Dominick Gabriele – Oppenheimer

Moshe Orenbuch – Credit Suisse

Bob Napoli – William Blair

Don Fandetti – Wells Fargo

Lisa Ellis – MoffettNathanson

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q4 2022 Earnings Call. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Kerri Bernstein. Thank you. Please go ahead.

Kerri Bernstein

Thank you, Donna and thank you all for joining today’s call. As a reminder, before we begin, today’s discussion contains forward-looking statements about the company’s future business and financial performance. These are based on management’s current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today’s presentation slides and in our reports on file with the SEC.

The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter’s earnings materials as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We will begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company’s progress and results and then Jeff Campbell, Chief Financial Officer, will provide a more detailed review of our financial performance.

After that, we will move to a Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Steve Squeri

Thanks, Kerri. Good morning, everyone. Thanks for joining us today. It’s great to be with you to talk about our 2022 results and our outlook for 2023. As I go through our results, I will tell you why they strengthened my confidence in our plan to generate strong growth over the long-term. A year ago, we introduced our growth plan, which provided a roadmap for delivering annual growth rates for revenue and earnings per share at levels that are higher than the strong growth rates we were delivering before the pandemic.

Our results over the last four quarters demonstrate that our strategy is clearly working. We exceeded the full year guidance we laid out in our growth plan for both revenues and EPS and we did so against the mixed economic environment. Revenues, which reached all-time highs for both the quarter and the year, were up 25% for the full year, exceeding the 18% to 20% guidance we started the year with. An earnings per share of $9.85 was well above our guidance of $9.25 to $9.65. The momentum we saw through the year in Card Member spending, engagement and retention continued in the fourth quarter.

Fourth quarter billed business reached a record quarterly high of $357 billion and was up 25% for the full year demonstrating our continued ability to acquire, engage and retain high spending premium card members. Customer retention and satisfaction remained very strong. In addition to strong internal metrics, we were recognized once again by our customers for providing industry best products and services, ranking number one in customer satisfaction in both the 2022 J.D. Power U.S. consumer credit card study and the U.S. small business card study.

The investments we have made in our value propositions continue to attract large numbers of new premium customers. We acquired 3 million new card members in the fourth quarter even as we increased our already high credit thresholds through the year. For the full year, new card acquisitions reached a record level, growing at $12.5 million and nearly 70% of our new accounts acquired are on our fee-based products.

Millennial and Gen Z customers continue to be the largest drivers of our growth, representing over 60% of proprietary consumer card acquisitions in the quarter and for the full year. Credit metrics remained strong, supported by the premium nature of our customer base, our exceptional risk management capabilities and the thoughtful risk actions we have taken for the year.

Looking ahead to 2023 and beyond, let me tell you why these results increase my confidence that we are positioned to deliver on our growth plan aspirations. First, we are in a great business. We operate in the most attractive segments and geographies of the fast growing payment space. As highlighted by our leadership positions with premium consumers, including millennials and Gen Zers small and medium-sized businesses as well as serving the largest corporations in the world. We bring to this space a number of advantages that are very difficult for our competitors to replicate. These include our brand, our unique membership model, a premium global customer base and an integrated payments model. Forming the foundation of these advantages is our talented dedicated colleagues who deliver unparalleled service to our customers. Put together, the marketplace opportunities we see and the competitive advantages we can leverage create a long runway for growth.

We intend to capture these opportunities and building our momentum by continuing to invest at high levels in several key areas, continuously innovating our consumer and SME products, refining our powerful marketing and risk management engines and capturing our fair share of lending. Growing merchant acceptance with a particular focus outside the U.S. and expanding partnerships to drive customer value across the enterprise, continuing to introduce new digital capabilities that deliver seamless, intuitive customer experiences in their channels of choice and expanding into adjacencies that reinforce our core, such as new lifestyle and financial services for consumers and SMEs, which adds more value to our membership model. All this investment happens while continually focused on gaining efficiencies in our marketing and operating expenses.

As we have demonstrated consistently over the past 2 years, executing this investment strategy builds scale, which fuels a virtuous cycle of growth, it starts with a high spending, highly engaged premium customer base. These premium customers attract a growing network of merchants and partners who add more value to our membership model, which in turn enables us to attract more premium customers who attract more merchants and partners, which creates more scale. This scale enables us to generate more investment and operating efficiencies in our membership model making it more difficult for our competitors to catch up.

So what does this mean for 2023? Our plan for this year is built on continuing our investment strategy in the areas I mentioned while factoring in the blue-chip economic consensus for slowing macroeconomic growth. And as always, we have plans in place to pivot should the economic environment change dramatically. This translates into 2023 guidance consistent with what we originally laid out in our growth plan last year. Specifically, we expect revenue growth of 15% to 17%, which is higher than our long-term growth plan aspirations and EPS of $11 to $11.40. In addition, we plan to increase our quarterly dividend on common shares outstanding to $0.60 a share, up from $0.52 beginning with the first quarter 2023 dividend declaration.

To sum up, our 2022 performance shows that our strategy is working. And based on our performance to-date and what we see for 2023, I am even more confident in our ability to achieve our aspirations for double-digit annual revenue growth and mid-teens EPS growth in 2024 and beyond. I will now turn it over to Jeff to provide more detail about our performance.

As always, we will have a Q&A session after Jeff’s remarks.

Jeff Campbell

Well, thank you, Steve and good morning, everyone. It’s good to be here to talk about our ‘22 results, which reflects steady progress against our multiyear growth plan that we announced last January and also to talk about what our 2022 results mean for 2023. I will also spend some of our time this morning focusing on our full year trends since it is year-end and since looking at our business on an annual basis is more in sync with how we actually run the company.

Starting with our summary financials on Slide 2, full year revenues reached an all-time high of $52.9 billion, up 27% on an FX-adjusted basis. Notably, our fourth quarter revenues of $14.1 billion also reached a record high for the third straight quarter and grew 19% on an FX adjusted basis. This revenue momentum drove reported full year net income of $7.5 billion and earnings per share of $9.85.

For the quarter, we reported net income of $1.6 billion and earnings per share of $2.07, which did include a $234 million impact from our net losses in our Amex Ventures strategic investment portfolio. As I have said throughout the year, year-over-year comparisons of net income have been challenging due to the sizable credit reserve releases we had in 2021. Because of these prior year reserve releases, we have also included pre-tax pre-provision income as a supplemental disclosure again this quarter. On this basis, pre-tax, pre-provision income was $11.8 billion for the full year and $2.9 billion in the fourth quarter, up 27% and 23% respectively versus the prior year, reflecting the growth momentum in our underlying earnings.

So now let’s get into a more detailed look at our results, beginning with volumes, starting on Slide 3, we saw good quarter-over-quarter growth in volumes. I would note that we reached record levels of spending on our network in both the fourth quarter and full year 2022. Total network volumes in billed business were up 16% and 15% year-over-year in the fourth quarter and 24% and 25% for the full year, all on an FX-adjusted basis. Now of course, growth rates for quarters earlier in the year included more of a recovery on the lower levels of volumes in 2021. And we are now to the point where we have lapped the majority of this recovery. We are pleased with this growth and the fact that it is being driven across customer types and geographies.

On Slides 4 through 7, we have given you a variety of views across our U.S. consumer services, commercial services and International Card Services segments and the various customer types within each. There is a few key points I suggest you take away from these various perspectives. Starting with our largest segment, U.S. consumer billings grew 15% in the fourth quarter, reflecting the continued strength in spending trends from our premium U.S. consumers. Our focus on attracting, engaging and retaining younger cohorts of card members through our value propositions, drove the 30% growth in spending from our millennial and Gen Z customers on Slide 5, who you can now see make up 30% of spend within the segment.

Turning to Commercial Services, you see that spending from our U.S. small and medium-sized enterprise customers represents the majority of our billings in the segment, supported by our strategic focus on expanding our range of products to help our SME clients run their businesses. We saw another quarter of solid growth in U.S. SME, though you can see that it was the slowest growing customer type this quarter, up 80% year-over-year. As you heard Steve talk about a bit last month at an investor conference, our SMEs have recently started to slow down spending in service categories such as digital advertising, so we continue to monitor spending trends.

Moving to our U.S. large and global corporate customers, the one small customer type that has not come back to pre-pandemic spend levels, they did continue though their steady recovery this quarter with overall billings now 11% below pre-pandemic levels. And lastly, you see our highest growth in international card services as this segment is now in a steep recovery mode given it started its pandemic recovery later than other segments.

Spending from international consumer and international SME and large corporate customers grew 23% and 32% year-over-year respectively in Q4. Across all customer types, T&E spending momentum remained particularly strong in the fourth quarter. While we also saw a nice sequential growth in the amount of goods and services spending versus last quarter, so there were a few pockets that slowed, such as the digital advertising spend in SME that I mentioned earlier.

So what do all of these takeaways mean for 2023? At this point, on a dollar basis, most of our spending categories have fully recovered. So I would expect more stable growth rates this year across spending categories with the exception that year-over-year growth rates for T&E spending will likely be elevated in Q1 as we lap the impact of Omicron from the prior year. Importantly, all of the things that Steve just talked about that make up the strategy underlying our growth plan have created a foundation for sustainable growth rates greater than what we were seeing pre-pandemic.

Now moving on to loans and Card Member receivables on Slide 8, we saw year-over-year growth of 24% in our loan balances as well as good sequential growth. This loan growth is now exceeding our spend growth as customers steadily rebuild their balances. Given the volumes, of course, have now lapped, there is deep phase of recovery, we do expect the growth rate of our loan balances to moderate as we progress through 2023, but to remain elevated versus pre-pandemic levels. The interest-bearing portion of our loan balances, which surpassed 2019 levels last quarter also continues to consistently rebuild with over 70% of year-over-year growth in the U.S. coming from our existing customers, which is about 10 percentage points more than what we saw in the years leading up to the pandemic.

As you then turn to credit and provision on Slides 9 through 11, the high credit quality of our customer base continues to show through in our strong credit performance. Card Member loans and receivables write-off and delinquency rates remain below pre-pandemic levels. So they did continue to pick up this quarter as we expected, which you can see on Slide 9. Going forward, we expect delinquency and write-off rates to continue to move up over time, but to remain below pre-pandemic levels in 2023 for Card Member loans.

Turning now to the accounting for this credit performance on Slide 10 and to this year-end and because the pandemic has clearly impacted the timing of quarterly reserve build and release adjustments across the industry, I think it’s helpful to look at our full year provision results. Full year 2022 provision expense was $2.2 billion, which included a $617 million reserve build, primarily driven by loan growth, the continued steady and expected increase in delinquency rates and changes in the macroeconomic outlook as the year progressed. The $2.2 billion number is of course still unusually low by historical standards relative to the size of our loan balances and card member receivables. Of the full year $617 million reserve build, we saw $492 million of it in the fourth quarter. Since earlier this year, we were still releasing a significant amount of the credit reserves we have built to capture the uncertainty of the pandemic. At this point, we no longer have any of these pandemic-driven reserves remaining on our balance sheet.

Moving to reserves on Slide 11, you can see that we ended 2022 with $4 billion of reserves, representing 2.4% of our total loans in Card Member receivables. This reserve rate is about 50 basis points below the levels we had pre-pandemic or day 1 CECL reflecting the continued premiumization of our portfolio and the strong credit performance we have seen. We view this consolidated reserve rate as more comparable to day 1 CECL than the individual loans and receivables rates. Because as we talked a bit last quarter, our charge products in many instances now have some embedded lending functionality. We expect this reserve rate to increase a bit as we move through 2023, but to remain below pre-pandemic levels. Taking all of this into account, in 2023, you should expect to see provision expense move back towards more of a steady state relative to the size of our loan balances and Card Member receivables for the first time since we adopted CECL in early 2020. Given the combination of our strong loan growth and the unusually low level by historical standards of provision expense in 2022, I would expect a significant year-over-year increase in provision expense.

Moving next to revenue on Slide 12, total revenues were up 17% year-over-year in the fourth quarter and up 25% for the full year. This is well above our original expectations, driven by the successful execution of our strategy and is part of which strengthens our confidence in our long-term aspirations.

Before I get into more details about our largest revenue drivers in the next few slides, I would note that you see a 200 basis point spread between our FX-adjusted revenue growth and reported revenue growth for this quarter. While this is less of an impact from the strong dollar than what we saw in the prior quarter, it does remain a modest headwind. Our largest revenue line, discount revenue grew 16% year-over-year in Q4 and 27% for the full year on an FX-adjusted basis.

As you can see on Slide 13, this growth is primarily driven by the momentum seen in our spending volumes throughout 2022. Net card fee revenues continued to accelerate throughout this year, up 25% year-over-year in the fourth quarter and 21% for the full year on an FX-adjusted basis, as you can see on Slide 14.

In 2023, I expect net card fees to be our fastest growing revenue line. I would expect growth to moderate from the extremely high level we saw this quarter. This steady growth is powered by the continued attractiveness to both prospects and existing customers of our fee-paying products due to the investments we have made in our premium value propositions, as Steve discussed earlier, with acquisitions of U.S. Consumer Platinum and Gold Card members and U.S. business Platinum Card members, all reaching record highs in 2022.

Moving on to Slide 15, you can see that net interest income was up 32% year-over-year in Q4 and 28% for the year on an FX-adjusted basis due to the recovery of our revolving loan balances. The rising interest rate environment has had a fairly neutral impact on our results in ‘22 as deposit betas lagged the rapid and steep benchmark rate increases during the year. However, when you think about 2023, deposit betas are now in line with more historical levels. So I would expect the year-over-year impact from rising rates to represent more of a headwind in 2023.

To sum up on revenues, we are seeing strong results across the board and really good momentum. Looking forward into 2023, we expect to see revenue growth of 15% to 17%. Now all this revenue momentum we just discussed has been driven by the investments we have made in those investments show up across the expense lines you see on Slide 17. Starting with variable customer engagement expenses, these costs, as you see on Slide 17, came in at 42% total revenues for the fourth quarter and 41% for the full year.

Based off the Q4 exit rates, combined with our continued focus on investing to innovate our products, I would expect variable customer engagement costs to approach 43% of total revenues in 2023. On the marketing line, we invested around $1.3 billion in the fourth quarter and $5.5 billion in the full year. As a reminder, our marketing dollars mostly represent the things we do to directly drive the great customer acquisition results we are seeing. As we look forward, we remain focused on driving efficiency so that our marketing dollars grow far slower than revenues as we did for many years prior to the pandemic. As a result in 2023, we expect to have marketing spend that is fairly flat to 2022.

Moving to the bottom of Slide 17 brings us to operating expenses, which were $4.1 billion in the fourth quarter and $13.7 billion for full year ‘22. In understanding our OpEx results, it’s important to note the net mark-to-market impact to our Amex Ventures strategic investment portfolio that I mentioned earlier with reference to Q4. These gains and losses are reported in the OpEx line and totaled $302 million in losses for full year 2022, while in the prior year, we had a $767 million benefit in net gains. Even putting this aside, as Steve and I have discussed all year, our 2022 operating expenses do represent a step function increase compared to prior years as we have invested in key underpinnings to support our revenue growth and this inflation has had some impact on our expenses.

Moving forward, similar to marketing, we are focused on gaining efficiencies and getting back to the low levels of growth in OpEx that we have historically seen. For 2023, we expect operating expenses to be around $14 billion and see these costs as a key source of leverage relative to the high level of revenue growth in our growth plan. Last, our effective tax rate for full year 2022 was around 22%. Our best estimate of the effective tax rate in 2023 is between 23% to 24%, absent any legislative changes.

Turning next to capital, on Slide 18, we returned $4.9 billion in capital to our shareholders in 2022, including $1 billion in the fourth quarter with $639 million of common stock repurchases and $389 billion in common stock dividends, all on the back of strong earnings generation. We ended the year with our CET1 ratio at 10.3% within our target range of 10% to 11%. In Q1 ‘23, as Steve discussed, we do expect to increase our dividend by 15% to $0.60 per quarter, consistent with our approach of growing our dividend decline with earnings and our 20% to 25% target payout ratio. We will continue to return to shareholders the excess capital we generate while supporting our balance sheet growth going forward.

That then brings me to our growth plan and 2023 guidance on Slide 19. 2022 was a strong year where we exceeded our full year guidance that we laid out in our growth plan last January for both the revenues and EPS. These results have strengthened our confidence in our 2023 guidance. First and most importantly, we expect the strategies that Steve laid out earlier to deliver continued high levels of revenue growth, leading to our revenue growth guidance for 2023 of 15% to 17% and setting us up well for 2024 and beyond.

As you think about the drivers of EPS growth in 2023, first, we expect to return to the low levels of growth we have historically driven in our marketing and operating expenses producing some nice leverage. Going the other driver, the two notable headwinds that should be just 2023 challenges are around the year-over-year impacts of provision and of interest rates, as I discussed earlier.

Combining all of these factors together, it leads to our EPS guidance of $11 to $11.40 for 2023. There is clearly uncertainty as it relates to the macroeconomic environment. But as Steve discussed, our 2023 guidance factors in the blue-chip macroeconomic consensus, which is for slowing growth though not a significant recession. I’d also say that our guidance is based on what we are actually seeing in terms of behavior from our customers around the globe. And of course, it reflects what we know today about the regulatory and competitive environment. We feel good about the momentum we see in our business and in any environment, remain committed to running the company with a focus on achieving our aspirations of sustainably delivering revenue growth in excess of 10% and mid-teens EPS growth in 2024 and beyond as we get to a more steady-state macro environment.

And with that, I’ll turn the call back over to Kerri to open up the call for your questions.

Kerri Bernstein

Thank you, Jeff. [Operator Instructions] And with that, the operator will now open up the line for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Ryan Nash of Goldman Sachs. Please go ahead.

Ryan Nash

Hey, good morning, everyone.

Steve Squeri

Good morning, Ryan.

Jeff Campbell

Good morning, Ryan.

Ryan Nash

So Steve, maybe just to focus on the revenue growth, so obviously, 15% to 17% is much better than the market was expecting, given macro concerns. And there is obviously been a little bit of an uptick in white collar unemployment. So could you maybe just talk high level about how you’re able to put up this type of revenue growth in a somewhat weakening environment? Maybe just talk through some of the things that are idiosyncratic to Amex that Jeff just referenced, at the end of the call that maybe the market isn’t appreciating that should be big drivers of revenue growth in the year ahead. Thanks.

Steve Squeri

Well, I think Jeff really hit it. I mean, what he basically said was, and this is where we what we’re focused on is we can only run the business and forecast the business on what we’re seeing. And what we’re seeing is we’re still seeing high consumer growth. We’re seeing high consumer growth in international. We talked about some moderation in small business. Corporate spending still has not come back. Jeff talked about T&E. But I think when you think about the model, I think what – you have to get an appreciation for is we’re a small segment of the overall U.S. population, and it’s a premium customer base. And that premium customer base, while not immune to economic downturn, certainly, right now is spending on through. And so the other thing that we’ve been doing is we’re constantly tightening up the card members that we’re acquiring. I mean, look, the card member base we have today is from a credit perspective, better than the card member base that we had pre-pandemic. And card members we’re acquiring today are reaching a higher hurdle rate than ones we acquired just a year ago. And because of the value, there is still a good pool of customers that are out there. As far as overall white-collar unemployment, what I would say is, yes, you’ve seen some headlines of individual companies that are going through layoffs. But the one thing that I would say is I think it’s really important to look at where these companies were pre-pandemic. And they are probably still at employment levels that are much higher than what they were pre-pandemic. And so there is a rightsizing a little bit. But even with that rightsizing, we still have unemployment rates under 4%. And so look, we look at unemployment. But it has not, at this particular point in time, had any impact on our on our card member base. I mean, again, keeping our write-offs at 0.8 and 0.6 is sort of not sustainable and were 1.1, as Jeff said, it shows on the slides. And that will tick up a little bit over time. But that’s just normal for the business.

So I think what you have to really – you have to look at is this is a premium card member base that appreciates premium products and is spending. And it is a – it is a small piece of the overall U.S. economy. And we’ve talked about the economy being bifurcated and it’s probably no better example of what we have here. The other thing that I would say, when you think about revenue growth, unlike our competitors, we have a 3-legged revenue stool here, right? You’ve got – you’ve got fees that we get for merchants, you have card fees. No card fees were 25% growth in the fourth quarter. And while that’s a high number, we certainly expect double-digit card fee growth to continue. And then you have, obviously, which is a smaller portion of our business. We have obviously interest revenue as well. So when we look at the card members we’re acquiring, we’re really looking at acquiring revenue across those three components. And the other thing I’d point you to is 70% of the cards that we acquire are paying fees. So that’s how we come up with 15% to 17%

Operator

Thank you. The next question is coming from Sanjay Sakhrani of KBW. Please go ahead.

Sanjay Sakhrani

Thanks. Good morning. I had a revenue question as well. Jeff, could you maybe just disaggregate the building blocks of the revenue growth. I know you mentioned a couple of things in terms of the trends on fees and NII. I’m just looking at discount revenue and the year-over-year change in growth, and that sort of decelerated a little bit more than I had anticipated, I guess, does that slow down? Maybe some help there would be helpful?

Jeff Campbell

I think, Sanjay, the building blocks are pretty straightforward. And of course, as Steve just pointed out in our model, you always have to start expecting, right? That’s what drives our model, that lending. And I think probably the important words that I would pick out of some of the things Steve and I have just said, for most of our spending categories, if you think about what’s important in terms of dollars, we really have hit recovery point. And so as we look at the Q4 rate, I actually see those exit rates is approaching pretty stable levels for what we think given the tremendous success we’re having in bringing new customers into the franchise because as you know, Sanjay, that is a key aspect of what drives our growth. I actually see those rates being fairly stable going forward. So that’s what drives first really strong discount revenue growth. Our card fee growth, as Steve just mentioned, is super sustainable. I’d just remind everyone that is the front-line item that grew double digits right through all the ups and downs of the pandemic. And gosh, our latest figures that Steve just gave you, 70% of our card members on fee-paying products this quarter, we have a long ways to go to keep growing net card fees. And then, look, it’s the third leg of the stool. It’s only 19%, 20% of our revenues, but net interest income matters. And we are still in a rebuilding mode of balance. Certainly, that process has now begun in earnest, and that’s why you saw our loans grow a little faster than volumes this quarter. So I don’t expect to see quite as high a rate next year as you saw in Q4. But it’s still above in 2023, I would say the stable level and still above where we were pre pandemic because of that rebuilding process. So you put all that together with the comments that you’ve now heard both Steve and I make, which is, look, we got to run the business based on what we see with our customers who are premium consumers, select segments of small businesses and the largest companies in the world, and that’s where you get to the 15% to 17% revenue growth.

Operator

Thank you. The next question is coming from Betsy Graseck of Morgan Stanley. Please go ahead.

Betsy Graseck

Hi, good morning.

Steve Squeri

Good morning, Betsy.

Betsy Graseck

So another kind of subtext on this theme. I wanted to understand a little bit about how I should be triangulating the revenue growth outlook, which is very clear with the comments around normalization of credit, should I be expecting that you’re underwriting to that pre-pandemic level of was it 2.3 on the slide, with marketing spend being flat and the proprietary net acquired accounts here coming down a little bit in the quarter. So when I see all that, I’m thinking that your bubble of account acquisitions is through, I suppose, and you don’t need that marketing dollars to drive that incremental rev growth at the same time as you’re underwriting to a group, a credit pool that’s similar to pre-pandemic so we should have that NCO trajectory move back up towards pre pandemic? Or is there something that I’m missing in pulling that all together? Thanks.

Steve Squeri

Well, there is a lot there, but let me try and talk about marketing, and Jeff can pick up on other components. But – so look, the $5.5 billion of marketing spend was all-time record high. And the 12.5 million cards that we acquired. The fact that you saw a 300,000 card decrease sort of sequentially quarter-over-quarter is not something that we’re concerned about at all. And some of the comped timing of when you do your acquisition and so forth. And so – but the key point here is that we’re all looking at marketing efficiencies. And we continuously raise the bar on who we are bringing into the franchise. So we’re not – I wouldn’t say we’re at a bubble in terms of card acquisition. We don’t project card acquisition. We provide the card acquisition numbers, but for us, and probably we need to do a better job going forward from a metrics perspective, but we really look at revenue.

I mean we look at the cards that we acquire in terms of how much revenue we can acquire. It’s the same thing with billings. I mean, not all billings are created equal. I mean there is billings that you have that don’t have a lot of value to it within the industry, we look at profitable billings, we look at card fees and we look at that, as Jeff said, interest income. So I wouldn’t take away from this that we were at an inflection point or a bubble or anything like that. I think the $5.5 billion is a tremendous amount of money to go out there and acquire with, and we’re pushing the organization to even be more efficient and more effective with that money. So we are looking at the same kind of acquisition levels that we’ve had in the past with higher underwriting standards as well. As far as operating expenses go, and as you start to think about that, we had a big step-up in operating expenses as we had tremendous growth. And having had a lot of experience running the components of this organization from both a technology perspective and an operating perspective, travel and what have you, as you see those volume increases, you need to manage and to get to that next level of scale. And we believe that we have gotten to that next level of scale, and we will get back to normal operating expense growth. And the other part of it just like everybody else look rates increased there was some inflationary pressure within there, but make no mistake about it, there was – we had to get to another scale.

When you have 25% revenue growth, we have 25% billings growth. When you have travel bookings that at all-time highs and continuing to increase quarter-over-quarter, you have to put in place not only the digital capabilities, but the people to make sure that you can handle all that. So from an expense perspective, the reason we’re able to say that we think marketing will be where it is and operating expenses will not grow at the same level that they will because we believe we’ve gotten to that scale component that we now believe that we can grow revenues 15% to 17% get into a 10% growth mode 2020 – plus 10% plus growth mode 2024 and beyond with that scale until the point in time. And I don’t know when that is where we have to have another scale jump. But what you saw from a growth perspective, last year was all about the scale. So Jeff, do you want to talk about credit or anything else or…

Jeff Campbell

No.

Steve Squeri

So that’s how I would think about that in terms of going below sort of the components of revenue and how expenses relate to that revenue.

Operator

Thank you. The next question is coming from Mark DeVries of Barclays. Please go ahead.

Mark DeVries

Yes. Thank you. Sorry if I missed this, but can you talk about how sensitive your revenue guidance is to the macro, kind of what gets you to the high and low end of the range you provided? And are you using at all the same assumptions around GDP and unemployment that you used to kind of set the reserve levels?

Jeff Campbell

Mark, one of the interesting things that I think surprises people is we have looked historically every way you could imagine, trying to find really direct correlations between GDP growth and for that matter between movements in the markets that affect people’s financial wealth. And the, I think, surprising things to many people is we can’t find any direct correlation between those two things. So when you look at our 15% to 17% guidance, it’s really – I go back to what Steve and I have both now said a couple of times, driven by – our best indicator is what we see with our customers around the globe and how they are behaving. And we certainly are aware of and thinking about various macroeconomic forecasts but you start with what behaviors are we actually seeing. And I’d also remind everyone that the U.S. remains by far our largest market. The U.S. economy shrank in the first two quarters of 2022, and we just posted revenue growth for the full year, 25%. So when I think about the 15% to 17% range, it’s really not a 15% is a weaker economy, 17%. Frankly, it’s – I wish we were more precise about forecasting, but it’s just a little bit of forecast error, I would say, based on the trends we’ve seen and the macroeconomic consensus, which is absolutely. The economy is supposed to slow when you look at that consensus, and that’s factored in here as well.

Operator

Thank you. The next question is coming from Mihir Bhatia of Bank of America. Please go ahead.

Mihir Bhatia

Thank you.

Steve Squeri

Good morning.

Mihir Bhatia

Good morning. I think you said 70% of existing loan lending growth came from existing members. Is there a similar metric you can share on the spending side? Just trying to understand as things normalize and we get into more of a normal cadence how maybe help us project a little bit on spending growth, how that can translate as we look at your last few quarters of strong acquisitions? Thanks.

Jeff Campbell

Well, so what I’d say is that when you look at lending, I’m going to go back to that 70% number. And I do think it’s an important one to think about the implications. I think occasionally people look at our loan growth and say, is that all the new customers you’re acquiring and what do you know about them? And so we actually draw a lot of comfort from the fact that you have 70% of that loan growth coming from just our existing customers that we know well, we have history with really just rebuilding more towards historical levels. If you think about spending, in our model, we talk a lot about the fact that we have, I think, by the standards of most industries, remarkably high retention rates in the high 90% range. And that’s a real key strength of our model. Once we get someone into the franchise, they intend to stay. That group, depending on the economy is growing organically a little bit. When you think about adding our new customers that is a key engine at any point in time of adding another normal environment. And it varies over time, but I might anchor around an 8% to 10% kind of number. So it’s a mixture of super low retention what we are doing to spur more spending by our existing customers and that steady flow of new customers. And so one of the things again, that Steve and I have both just talked about, because I think people seem a little surprised to you by the 15% to 17% is a key driver, why we are comfortable with that is our tremendous success over the last year, and in the first weeks of 2023 and bringing great new customers into the franchise.

Steve Squeri

Yes. And the other thing that I would say is and I said this in my remarks, this virtuous cycle that we talk about, the more card members we bring in, the more merchant and partner offers that we can get. And so the engagement – the increased engagement from existing cardholders is a really important driver of growth. So that – the membership model is we just don’t bring our card members in and sort of watch them hope they grow. We bring our card members in and we want to work with them to grow. We do that from a small business perspective with our account development teams, making sure that they are taking advantage of all the benefits of the card, making sure that they are spending in categories that they can spend in, maximizing rewards and so forth. And we do that with our card base from an offer perspective through Amex offers through other direct offers from partners embedded offers within the model. And so a lot of our engagement not only from a customer service perspective is to making sure that our card members are taking advantage of all the aspects of the card that are out there. And so we really look to grow same-store sales, right. I mean so from existing card members, we are constantly looking to grow that share of their wallet. And again, that gets easier as the cycle gets bigger because more and more merchants want to reach more and more of our card members.

Operator

Thank you. The next question is coming from Brian Foran of Autonomous Research. Please go ahead.

Brian Foran

Hi, obviously, a very positive outlook. I don’t want to sound negative, but I think what we are all kind of dealing with is investors being like this is great? I will take it, but help me think about what are the risks? Where could it go wrong? So, maybe one question and one follow-up along the same theme, Jeff, when you were talking about the macro sensitivity, one question I hear sometimes is the note that the aspirational 2024 and beyond is a steady-state macro. And I get the investor question like, where is the dividing line? Like what would non-steady state macro look like where that guidance would then or aspiration within not apply? So, maybe you could touch on that, like what are the bounds in your mind for a steady-state macro?

Jeff Campbell

Well, I think Brian, I would start with two comments. First, when you think about our long-term aspirations, we don’t actually worry about recessions at all because the reality is, at some point, and I don’t know if it’s six months from now or 6 years, there will be a recession. And after that recession, there will be a recovery. And it doesn’t change our view of we should be able to steadily grow this company in excess of 10%. Now, when there is a recession where you see a very significant shrinkage in GDP. So, not like the first half of last year where maybe the U.S. GDP went down 0.5 point or something. But where you suddenly see a quarter or two quarters where you have a pandemic like or great financial crisis like large percentage declines in GDP and you see huge spikes in unemployment. If you go back to one of the appendix slides, you will see that our CECL credit reserve accounting assumes a baseline and also builds in a downside scenario. In that downside scenario, you have 8% unemployment by the third quarter of 2023. Well, if there is 8% unemployment by the third quarter of 2023, we are going to have a few quarters where we are probably below our longer term aspirations. But is that kind of large shock that’s going to knock us off for a few quarters, but I really want to keep coming back to and I suspect, Steve, you might reinforce this, but it doesn’t change our long-term aspirations or how we are going to run the company.

Steve Squeri

No. And I think just go back to the pandemic. So, look, we pulled back on acquiring card members because I don’t think anybody had any line of sight. I mean that the pandemic was worse than the financial crisis from a credit underwriting perspective. You never say never, but that’s sort of like the 100-year flood, right. And so my perspective is we will still acquire in that kind of scenario. And remember, everything we acquired today, we acquired through the cycle, but what we would do is move the credit criteria even further up. But what we would do again is we would engage with our card members. I think one of the most successful things that we did during the pandemic was retaining card hold, retaining those cardholders, whether it was through financial relief programs that got them through the hump for a couple of months or six months, whatever it was, or engaging them to spend in other areas and to stick with us. So, the reality is, is that if we were running this business quarter-to-quarter, which we don’t, you would pull back. But the reality is, as Jeff said, after every recession there is a recovery. And the last thing you want to do is retrench in such a way that you are not going to be able to take advantage of the recovery. And that retrenchment, looks – it looks like layoffs that don’t make sense and pulling back on marketing and trying to hit an EPS number for a quarter or for a year that is irrelevant. What’s relevant is for a 172-year-old company to continue to grow over the medium and long-term. And the way you do that is you invest judiciously and you invest smartly. And in times when things are bad, you invest in your infrastructure, you invest in your people because you are going to need great people through when a recession is over, and your infrastructure is going to need to do that. And where companies make mistakes is let go of great people, and also do not invest in those things, they are going to need six months to nine months from now when the recession is over. So, yes, we may have a moment in time, as Jeff said, it could be six months, it could be 6 years, but there will be a time when we don’t make that. And – but there will be a time where we exceed that. And that’s why we say our long-term aspiration is for 10%-plus growth in revenue, and we feel we are on a way to that.

Operator

Thank you. The next question is coming from Rick Shane of JPMorgan. Please go ahead.

Rick Shane

Thanks for taking my question. Look, when we look at Slide 5, it’s really interesting in terms of the contribution and the significant growth from millennials and Gen Z. You guys have been really successful there. And we have seen that progress over time. I am curious, given that the millennial Gen Z growth in the last year was basically 5x, 4x to 5x other cohorts and the significant loan growth. If we looked at this distribution by age cohort, not for build business, but by portfolio in terms of borrowings, what the distribution would look like with millennials over-index versus the peers?

Jeff Campbell

Well, the short answer, Rick, is no. When you think about the behavior of the millennials and Gen Zs, there are a few distinguishing features, and we have talked about these. They tend to be more digitally and engaged. They tend to be more engaged with the overall value proposition, which we actually see as a good thing. Because of that, they often will engage more quickly when they get the new product. But I would also remind you of the other stat we have talked about this morning, which is 70% of our growth in loans right now is coming from existing customer facilities. We add a lot of these millennials there. That segment is still not adding as much to the loan growth because of the rebuild imbalances by your existing customers. So, while the behaviors of the younger card members are on average, similar to the older card members when you think about borrowing, just sort of the math here because you have got this rebuilding effect would say that they are not driving that bigger portion of our loan growth.

Steve Squeri

Yes. And we tend to get a higher share of their wallet, but they have lower – they do have lower spending. And the great part about millennials and Gen Zs is that they are – and depending on where you are in millennial. I mean some millennials are 40 now. So, I mean, they are in a different thing. But the reality is the lifetime value of these cardholders is going to be significantly more than the lifetime value of acquiring a boomer or acquiring a Gen Xer right now. And that is – that’s very attractive as well. And if you look, again, Rick, on Page 5, you will see that, look, it’s 30% of the business growth. On the other hand, the boomer growth is only 6%. And some of those have been leery to go back travel still. So, we would also expect that to go up.

Operator

Thank you. The next question is coming from Dominick Gabriele of Oppenheimer. Please go ahead.

Dominick Gabriele

Hey. Good morning.

Steve Squeri

Hey Dominick.

Dominick Gabriele

Great results. Good morning. I just want to change the topic a little bit. I just wanted your updated thoughts if you could just remind everybody about your ability to make account-by-account purchase limit authorization decisions given many of the accounts don’t actually have stated line sizes on the charge cards. So, I am just really wondering about severity of loss in the downturn versus the frequency is more based on unemployment, but your ability to really hone in on limiting the severity of loss given your underwriting techniques. Thanks so much guys.

Steve Squeri

I mean I think you just reminded us. The reality is, it’s a couple of things, right. Number one, we constantly go through and look at contingent liability that’s not being utilized. And so if we have somebody that has X for Align and they are only using 25% of X, we may not keep X there that long. We don’t want to be a lender of last resort, right. That’s number one. Number two, we also are – for new card members, we are raising those cycles, but raising the limit, the hurdle rate that we acquire card members. But we underwrite every transaction. We make a credit decision not based on the line because most of our card members do not have a line. I mean obviously, traditional lending cards have line. But other than that, we are underwriting every single transaction. So, we are not letting somebody just run it up because they have run it up in the past. And we are not letting somebody run up to a limit and have that write-off. One of the advantages of our model, and I am not going to get into all the variables underneath for a couple of reasons. Number one, we don’t have time. And number two, it’s very complicated. And number three, I probably don’t fully all understand the whole thing either. But it’s – an advantage of this model is that every single transaction is adjudicated on its own merits. It’s not adjudicated based on an open to buy. And that is very important. It also – but that’s from a credit perspective, that’s a really reassuring thing. But from a spending perspective, it also enables why you read some of these stories of, hey, I just bought a painting for $75 million. There is nobody that has a $75 million line, right. Now, those are very difficult underwriting decisions and not for the faint of heart, but it does show that we make those same kind of decisions on a $200 purchase, on a $400 purchase. Every single transaction that comes through this system is adjudicated on its own merits, not on sort of some open to buy, and that gives us great comfort in terms of not having somebody just run something up and then have something written off.

Jeff Campbell

Yes. The only thing I would add, I think that is a unique capability we have honed over many decades since we first started the charge card product. The other advantage of the charge card product, I would say, Dominick, is it does give us this population who is supposed to pay us in full every 30 days, which actually is almost like an early warning system from an overall risk management perspective of when there are problems that pop up in various parts of the world or various segments or various customer types. And we think that’s actually helpful to our overall results, and it’s the part of the many things that drives us historically and today to have by far, best-of-class credit metrics.

Operator

Thank you. The next question is coming from Moshe Orenbuch of Credit Suisse. Please go ahead.

Moshe Orenbuch

Great. Sorry to go back to the revenue guide. But Jeff, and I appreciate the 25% revenue growth for the full year, but the quarter was 17%. And between you and Steve, you both said that there was going to be a slowdown, it’s still strong, obviously, but a slowdown in card fee revenue growth and with the comments about margin, probably net interest income. So, I guess is there a part of the revenue base that you think is accelerating in ‘23?

Jeff Campbell

Well, so, two comments. I think it’s a good call out, Moshe. The first comment is as you think about 2021, of course, the base year here, you saw things progressively pick up as you went through the year. So, that’s why each quarter our volumes on a year-over-year basis has slowed a little bit. But we also have pointed out that I think you are sort of through that recovery period now. So, I think what you see in Q4 in our view, is very typical of what you are going to get. Now, the one exception that we do think will accelerate is the net interest income piece, because you do have customers continuing to rebuild balances. So, net card fees probably moderates a little bit. Net interest income probably accelerates a little bit. But your discount revenue should be pretty consistent with what you would have seen in this quarter. And that’s really the model that leads you from Q4 to what we expect for 2023.

Operator

Thank you. The next question is coming from Bob Napoli of William Blair. Please go ahead.

Bob Napoli

Thank you. And maybe some topics that haven’t been touched on yet. And Steve, you called out investment in services and adjacencies, I would say and also, the international piece, expanding your merchant acceptance there. So, just any call-outs on adjacencies, the B2B payments and your – how that contributes to your long-term strategy. And then international, I seem to recall Japan being an important market for, you saw some good growth internationally, Japan reopened, China is reopening. Is there acceleration potential in international in 2023?

Steve Squeri

Yes. So, let me hit a couple of these topics and hopefully, I remember the mall that you went through. But look, I think international, we have seen which is really good and just look at the slides, you have seen really good growth from not only a consumer perspective, which is over 20%, but international SME and large corporations are growing at 32%. So – and remember, pre-pandemic, those are the fastest-growing parts of our business. So, we expect that to continue to grow, which obviously Japan is part of it and one of our top markets. From an acceptance perspective, we continue to grow acceptance internationally. We are really happy with the coverage gains that we have had, and we will continue to focus on that. We have talked about focusing on priority cities. We focused on all the categories, e-commerce, restaurants and lodging and tourist attractions, airlines, hotel and so forth to get those up. But again, with that we are getting 23% and 32% billings growth and our coverage is not where we want it to be yet, and we will continue to invest in that coverage. Look, as far as B2B goes, B2B continues to be a good story for us, but it’s just a small part – it’s a smaller part of the business. And we continue to invest in capabilities and we will continue to focus on B2B, but that will add not only to commercial spending, but that will also add to small business spending as well. And remember, 80% of the small business spending that we have is in the category of B2B spending. And so we will continue to hunt for that and try and automate more and more of those billings, and it makes it easy to get on the card.

Operator

Thank you. The next question will be coming from Don Fandetti of Wells Fargo. Please go ahead.

Don Fandetti

Hi Steve. Just curious if you have seen anything that sort of raised your concern level around competition in U.S. consumer or small business. I mean it seems to us like you might be pulling away a little bit from competitors. I am not sure if your metrics suggest that or not?

Steve Squeri

Well, I mean I don’t – we continually look to raise the bar. And I think that there is a lot of great competitors out there. We have got JPMorgan and Bank of America and Wells Fargo and U.S. Bank and Capital One. And everybody is – they are all strong. And they – I mean they all had pretty strong results from a growth perspective. But as I said in my remarks, the more value we continue to add, the more we get our flywheel working, the harder it is to catch up. And we are not resting on our laurels. And that’s why we continue to invest. We continue to invest in value propositions. We continue to invest in capabilities. We continue to invest in service. And so are we increasing the distance between us and our competitors, I don’t know how you measure that, but I think we – our goal is to constantly make it hard for them to catch up. And our goal is to make sure that we are trying to be one step, two steps or three steps ahead of them. And it’s flattering, actually that they are coming after the segments that we are in. And – but competition is there, and it is fierce. And for us, competition is just not U.S. consumer. It’s a small business. It’s corporate. It’s in international. And so we are fighting a lot of battles here in terms of defending our territory, but I think the team is doing a really, really good job. But we are never going to rest. And if in fact they stopped, we still keep going. So, it is really important. I think it’s one of the things that we decided a number of years ago that we would constantly refresh our products on a very regular basis and add value on an interim basis, which you have seen with our Platinum Card and our other products. And I think that’s really helped us out quite a bit.

Operator

Thank you. Our final question will come from Lisa Ellis of MoffettNathanson. Please go ahead.

Lisa Ellis

Terrific. Thank you. Thanks for squeezing me in. I had a question about international. The 26% of business growth in international really caught my eye because that figure is more than 2x of what Visa and Mastercard’s international credit growth was in the fourth quarter. And so I was hoping to just dig in a little bit, so into what – looking at your international business is driving that and how sustainable it is? It looks like it’s mostly driven by spending per card. The card growth isn’t unusually high. So, is there a – I am trying to understand, is this a significant share gain going on? Is this acceptance that you are driving? Is this something unique about the geographic composition of the customer base. Can you just dig into that a little bit? Thank you.

Steve Squeri

Yes. So, Lisa, I think it’s – look, pre-pandemic, we are pretty close to 20% anyway from an international perspective. And look, it’s a smaller base than Visa, Mastercard. And it’s a really high premium customer segment. And it’s a segment that travels – it’s a card base that travels quite a bit. So, pre-pandemic, we were growing in that 20% range. And that growth was due to a real focus on value proposition and a focus on merchant acceptance. I think what you are seeing right now, which is 26% growth, which is slightly outsized growth is still a recovery from the pandemic, right. I mean if you think about it, this 26% growth quarter-over-quarter, you still had a lot of lockdowns. People were not traveling last year at this time in international and so. Look, we are – our goal is to – our hope is to continue to grow this business as it was pre-pandemic at around that 20% level. But from my perspective, there is really nothing unusual here. We are sticking to our strategy, enhancing the value, continuing to add merchant acceptance and continuing to invest in this segment – these two segments of small business and international consumer card, which were fast-growing pre-pandemic, so nothing really unusual. And it probably normalizes a little bit as the year goes because people were getting out there and traveling and we got into the second and third quarters.

Kerri Bernstein

With that, we will bring the call to an end. Thank you for joining today’s call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.

Operator

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at 877-660-6853 or 201-612-7415, access code 13734498 after 1:00 p.m. Eastern Time on January 27th through February 3rd. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.