Amex Can Still Profit When Customers Are Less Venturesome

Spending on lodging on Amex’s proprietary cards in the third quarter was down 68% from a year earlier.


kai pfaffenbach/Reuters

We would all rather be on a family road trip than doing our work expenses. But the boring stuff may be

American Express’s

AXP -3.64%

best bet for the near future.

At the beginning of the summer


AXP -3.64%

was hopeful that it would see a bump in travel-and-entertainment spending as pent-up demand for travel led more consumers to do things like take driving trips and stay in an Airbnb. On Friday the company told analysts that spending on home rentals and domestic travel was doing better than urban hotels. But overall spending on lodging on


AXP -3.64%

proprietary cards in the third quarter was still down 68% from a year earlier—not much different from the 75% decline in the first half of the year.

Shopping online continues to be a huge driver of other spending. But an important corollary to that is spending by small businesses trying to get in front of those digital customers. That has fueled a 10% year-over-year bump in commercial-card spending on advertising, media and communications, by far the biggest growth area for business spenders. Amex described what it was seeing as “creative pivoting of business models in the small business community.”

Indeed, it is this kind of services spending by businesses that might be among Amex’s best opportunities to make up for some of the long-term decline in lucrative categories like overseas trips and conferences. While online retail shopping is to some degree a swap-out of in-store purchases, business-to-business spending via cards is more often brand-new volume, replacing what previously might have been paid by check or wire.

Amex noted that its primary small-business customer is more like a contractor, lawyer or architect than a restaurant or dry cleaner. Amex is aiming to automate and capture a bigger portion of buying supplies and other business billing that is increasingly happening digitally. It said such spending is “a large percentage of our growth right now” with small businesses. This is the same trend that has propelled stocks like

Coupa Software

and Holdings

BILL -0.56%

to enormous gains this year.

Amex itself is stepping up spending. It laid out $200 million for its largest-ever Shop Small advertising campaign, and overall increased its marketing expenses by 23% over last year. Amex is also pivoting away from its traditional heavy emphasis on travel, including by promoting card rewards for non-travelers with credits for things like streaming services and wireless bills.

Travel may stay down for a long time, and Amex shares were off by nearly 3% on Friday. But investors should be aware that people and businesses are finding new ways to spend on their cards while sitting still.

Write to Telis Demos at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the October 24, 2020, print edition as ‘AmEx Pins Its Hopes On Small Business.’

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