American Express Demonstrates Resilience with Record Q2 Revenue Amid Premium Strategy Push

Recently American Express (NYSE: AXP) reported record quarterly revenue in Q2 2025, underscoring the strength of its premium-focused business model in a volatile economic environment.

The company announced total revenues net of interest expense of $17.86 billion for the quarter ended June 30, 2025, marking a 9% increase from $16.33 billion in the same period last year. Net income stood at $2.89 billion, or $4.08 per diluted share, compared to $3.02 billion, or $4.15 per share, in Q2 2024. The slight decline in net income was attributed to higher provisions for credit losses and increased operating expenses, but the revenue growth highlighted robust card member spending and strong demand for premium products.

Billed business, a key indicator of card usage, grew 7% year-over-year to $416.3 billion, driven by record levels of spending among premium cardholders. Net card fees, a cornerstone of American Express’s revenue model, surged 20% to $2.48 billion, reflecting successful customer acquisition and retention in high-fee products like Platinum and Centurion cards. Discount revenue, generated from merchant fees, increased 6% to $9.36 billion, while net interest income rose 12% to $4.19 billion on higher loan balances.

Credit metrics remained solid, with principal net write-off rates at 2.0% for both consumer and small business segments, demonstrating the resilience of the company’s affluent customer base. Provisions for credit losses increased 11% to $1.4 billion, primarily due to growth in loans and receivables. Total expenses climbed 14% to $12.9 billion, fueled by higher customer engagement costs and investments in technology and risk management.

American Express added 3.1 million new proprietary cards in the quarter, with 63% of global consumer acquisitions coming from Millennials and Gen Z customers. This demographic shift supports long-term growth, as younger cardholders show higher engagement with premium features. International markets contributed positively, with billed business growth of 8% outside the U.S. on an FX-adjusted basis.

Management expressed confidence in the company’s trajectory during the Q2 2025 earnings call. Chairman and CEO Stephen Squeri highlighted the differentiated membership model, stating, “Our results reflect the earnings power of our business and our continued investments for growth. We see resilient consumer demand, particularly among our premium customers, and we’re on track to deliver our full-year guidance.” The company reaffirmed its 2025 outlook, expecting revenue growth of 8-10% and EPS between $15.00 and $15.50, representing adjusted EPS growth of 12-16%.

The trailing 12-month ROE stands at 31%, reflecting efficient use of shareholder capital. Similarly, the trailing 12-month Return on Tangible Assets is 3.4%, indicating solid asset utilization in generating profits.

Qualitatively, American Express benefits from a wide economic moat characterized by network effects, brand loyalty, and high switching costs. The company’s closed-loop system creates a powerful barrier, where increased cardholder spending attracts more merchants, and premium rewards foster loyalty. Intangible assets like the iconic brand enable pricing power, allowing American Express to charge higher fees while maintaining customer retention. Evidence of this moat includes consistent high ROE above 30% and top customer satisfaction rankings in digital channels.

As Warren Buffett has famously articulated, a business’s economic moat is its ability to maintain competitive advantages over time, much like a medieval castle’s moat protects it from invaders. For American Express, this moat is exceptionally strong and multifaceted. Its closed-loop network is a key pillar, giving the company a direct relationship with both cardholders and merchants. Unlike competitors that act as intermediaries between banks and merchants, American Express controls the entire transaction process. This integration provides superior data and insights, allowing for better fraud detection and targeted marketing. The brand’s prestige and focus on affluent customers create a powerful self-reinforcing cycle; high-spending customers are drawn to the exclusive benefits and status, which in turn makes the brand more attractive to other high-value customers and merchants seeking to reach them. The company’s long-standing reputation for premium service and unparalleled rewards creates a nearly insurmountable psychological barrier, making it difficult for competitors to replicate and capture its most valuable customers.

The business model requires minimal tangible asset reinvestment for growth, with significant free cash flow available for shareholders. CapEx is low relative to revenue, at approximately 3%, enabling high asset turnover and efficient scaling through digital platforms. This efficiency is evident in the TTM free cash flow of $11.095 billion, supporting share repurchases and dividends without heavy capital outlay.

The payments industry exhibits high resilience, with consistent demand resistant to technological disruption. American Express’s focus on affluent customers makes it less sensitive to economic cycles, as seen in steady growth post-COVID and the lowest projected credit loss rates in stress tests. The sector’s stability is bolstered by regulatory barriers and network scale, allowing the company to navigate volatility effectively.

Competitively, American Express holds a strong position in the premium segment within a concentrated industry. Key rivals like Visa and Mastercard boast wider acceptance and lower fees but lack the prestige and rewards depth of American Express’s offerings. Discover emphasizes cashback but has a smaller network. American Express’s strengths in vertical integration and loyal high-spenders outweigh weaknesses in merchant acceptance, positioning it well against open-loop competitors.

Valuation and Investment Outlook

Valuations were calculated using two methods. The Buffett-Inspired approach projects Distributable Earnings (Net Income to common shareholders) at constant 3% growth for 10 years, with an 8% discount rate and 2.5% perpetual growth for terminal value, yielding an intrinsic value of $278.89 per share. The McGrew Growth method uses a 3-year Distributable Earnings CAGR of 16%, declining linearly to 6% by Year 10, resulting in $533.11 per share. Both apply a 40% margin of safety.

American Express’s performance aligns with broader trends in financial services, where premium positioning and digital innovation drive differentiation. The company’s CET1 capital ratio remains within the 10-11% target, supporting capital returns of $2.0 billion in Q2 through dividends and buybacks. Shares outstanding decreased to 696 million, reflecting ongoing repurchases.

Looking ahead, product refreshes for U.S. Consumer and Business Platinum Cards are expected to enhance value propositions, further entrenching the moat. Investments in enterprise risk management and technology underscore commitment to sustainable growth. With a forward P/E ratio of around 19.6 (from valuation measures) and a free cash flow yield of 5.4%, the stock offers compelling metrics for long-term investors.

The company’s ability to attract younger demographics while maintaining affluent loyalty positions it for continued expansion. As geopolitical and economic uncertainties persist, American Express’s resilient model—anchored by network effects and low capital intensity—provides a stable foundation. Management’s reaffirmed guidance signals optimism, backed by strong Q2 results and strategic initiatives.

Additional Quantitative Financial Analysis