American Express Company (AXP) Q4 2021 Earnings Call Transcript

American Express Company  (NYSE: AXP) Q4 2021 earnings call dated Jan. 25, 2022

Corporate Participants:

Vivian Zhou — Head of Investor Relations

Steve Squeri — Chairman and Chief Executive Officer

Jeff Campbell — Chief Financial Officer

Analysts:

Ryan Nash — Goldman Sachs. — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Mihir Bhatia — Bank of America Merrill Lynch — Analyst

Bill Carcache — Wolfe Research — Analyst

Chris Donat — Piper Sandler — Analyst

Moshe Orenbuch — Credit Suisse. — Analyst

Bob Napoli — William Blair — Analyst

Arren Cyganovich — Citi — Analyst

Rick Shane — JP Morgan — Analyst

Mark DeVries — Barclays — Analyst

Lisa Ellis — MoffettNathanson — Analyst

Don Fandetti — Wells Fargo. — Analyst

Sanjay Sakhrani — KBW — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q4 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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. Vivian Zhou. Please go ahead.

Vivian Zhou — Head of Investor Relations

Thank you, Alan. 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 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 — Chairman and Chief Executive Officer

Thanks Vivian and good morning everyone. As you saw in our press release a short while ago, we reported strong quarterly and full-year revenue growth in earnings for 2021, thanks to the efforts of our dedicated and talented colleagues around the globe. We also provided revenue and EPS guidance for 2022 and we announced a new growth plan that resets our longer-term aspirations for revenue and EPS growth, so levels that are higher than what we were delivering in the years before the pandemic.

I want to spend my time today talking about why these results and our progress over the last few years has me excited about the future and our aspiration to deliver higher levels of sustainable profitable growth. As we’ve seen in our results for Q4 and the full year, the capabilities we’ve built over the past few years by investing in our customers, our brand, and our talent are helping us drive share, scale and relevance that leads to profitable growth and we believe that will continue as the global economy continues to improve.

Our strong performance across a number of key business metrics help deliver revenue growth of 30% in the fourth quarter and 17% for the full year. Diluted EPS for the quarter was $2.18 and $10.02 for the full year. In the near term, we expect full-year revenue growth to remain at elevated levels, reaching 18% to 20% in 2022 driven by the execution of our growth plan and the recovery tailwinds we anticipate from continued improvement in the macroeconomic environment.

We expect EPS of between $9.25 and $9.65 in 2022. As we think about 2023, the continuation of the recovery tailwinds could drive revenue growth in the mid teens, which in turn should provide a platform for mid-teens EPS growth. Looking further out, as we return to a more steady-state economic environment, we aspire to achieve revenue growth in excess of 10% and EPS growth in the mid-teens under our new growth plan for 2024 and beyond.

We’ve learned a lot over the past few years that we believe will help us achieve our growth plan aspirations. The business imperatives and strategies we focused on pre-pandemic, the decisions we made when COVID-19 first hit to protect our customers and colleagues, and our pivot early in the recovery cycle to ramp up investments in a number of key areas, all proved to be the right moves that have been good for our business.

Most importantly, our experience through this period has reinforced our conviction that investing strategically in our customers brand and talent is absolutely critical driving high levels of growth. We’ve seen that play out in the results we delivered throughout 2021. Our fourth quarter performance continued the trends we saw all year in a number of areas that are core to our growth over the long term. Spending growth reached a record quarterly high, driven by continued increases in goods and services spending. Which was 24% above pre-pandemic levels. Global consumer goods and services spending in the quarter grew 26% versus 2019. And we saw continued robust growth in small business B2B spending, which increased 25% over Q4 2019 levels. Overall T&E spending also continued to improve, reaching 82% of pre-pandemic levels, driven by stronger consumer travel spend.

Customer retention and satisfaction continue to be very strong and remained above pre-pandemic levels. For example, retention rates in global consumer above 98%, and for the second year in a row and the 11th time in 15 years, we ranked first in JD Power’s Annual Credit Card Satisfaction Study of US consumers. Credit performance also continued to be outstanding with key metrics near historical lows and our card members are building loan balances at a modest pace,

Customer engagement with our products, services and capabilities continued at high levels in the quarter. The strong engagement, which is fueled by our ongoing investments in value propositions, marketing and new digital services is helping to drive the results I just spoke about in billings and loan growth as well as customer retention and satisfaction levels.

Additionally, our customer-focused innovation strategy, which has driven increases in customer engagement has continued to attract large numbers of new customers. New card acquisitions reached 2.7 million in Q4, driven by strong demand for our premium fee-based products where we saw acquisitions nearly double year-over-year. In consumer, Millennials and Gen Z customers are driving the growth in acquisitions representing around 60% of the new accounts we acquired globally in 2021. In commercial, Q4 closed out as one of the best years we’ve ever seen for US SME new account acquisition.

The momentum we generated throughout 2021 further strengthens our resolve to continue our focus on the strategic imperatives we laid out back in 2018, expanding our leadership position in the premium consumer space by providing a differentiated and ever expanding range of services and lifestyle-focused value propositions. Building on our strong leadership position in commercial payments by being the key provider of payments and working capital solutions for small and medium-sized businesses expanding our merchant network globally to give our card members more places to use their cards and staying on the leading edge of technology and digital payment solutions to make American Express an essential part of our customers’ digital lives.

We are entering 2022 in a position of strength and based on the momentum with which we exited 2021 and the opportunities we see ahead, we feel very good about the future. We believe that continuing our strategy of investing in high levels in our customers brand and talent as we implement our growth plan will position us well as we seek to achieve our growth aspirations in 2024 and beyond.

I’ll now turn it over to Jeff to provide more details on our performance for the fourth quarter and our expectations for the future. And after that, we’ll take your questions. Thank you. Jeff?

Jeff Campbell — Chief Financial Officer

Well, thank you, Steve. Good morning, everyone. It’s great to be here to talk about our fourth quarter and full-year 2021 results, the ambitious new growth plan that Steve just talked about, and what it all means for 2022 and beyond. You see the growth momentum that Steve just discussed in our summary financials on Slide 2 with fourth quarter revenues of $12.1 billion, up 31% and full-year revenues of $42.4 billion, up 17%, both on an FX adjusted basis.

In understanding our full year net income of $8.1 billion and earnings per share of $10.02, I would point out that we had around $3.5 billion of significant impacts from items that we do not expect to repeat in the same magnitude going forward, including a $2.5 billion credit reserve release benefit in provision, as well as a few sizable net gains on equity investments.

Getting into a more detailed look at our results, let’s start with volumes. You will notice in the several views of volumes on slides 3 through 9. But we continue to show 2021 volume trends on both a year-over-year basis and relative to 2019. There are a few key insights that I would highlight across these slides that strengthen our conviction in the investment strategy we have been focused on to deliver our new growth plan.

To start, we saw record levels of spending on our network in both the fourth quarter and full-year 2021 with total network volumes and billed business volumes, both up more than 10% relative to 2019 on an FX adjusted basis in the fourth quarter, as you can see on Slide 3. This growth in billed business as shown on slides 4 and 5 is being driven by continued momentum in spending on goods and services which strengthened sequentially and grew 24% versus 2019 in Q4. This momentum is from the strong growth in online and card-not-present spending that continued throughout 2021, even as offline spending fully recovered and resumed growth, demonstrating the lasting effect of the behavioral changes we’ve seen during the pandemic. Importantly, this 24% growth versus 2019 in Q4 represents a cumulative growth rate over the past two years that is well above the growth rate we were seeing pre-pandemic.

In our consumer business, our focus on attracting and engaging younger cohorts of card members through expanding our value propositions and digital capabilities is fueling the 50% growth in spending from our Millennial and Gen Z customers you see on Slide 6, and spending from all other age cohorts also showed steady improvement throughout 2021 and exceeded pre-pandemic levels in Q4.

Our strategic focus on helping our small and medium-size enterprise clients run their businesses by expanding the range of products and capabilities that meet their B2B payments and working capital needs, is driving the strong SME spending trends you see on Slide 7. Global SME expanding particularly B2B spending on goods and services has been driving the growth of our commercial billed business throughout 2021 and reached 25% above pre-pandemic levels in Q4.

Now turning to T&E spending, you can see on Slide 8 that it continues to recover in line with our expectations, with overall T&E spending reaching 82% of 2019 levels in the fourth quarter. We did see some modest impacts from the Omicron variant in T&E spending as the pace of recovery slowed a bit in December. But even with that modest slowdown, US consumer T&E was not only fully recovered in the fourth quarter but actually grew 8% above 2019 levels. On balance, the T&E trends we have seen throughout 2021 reinforce our view that travel and entertainment spending will eventually fully recover but at varying paces across customer types and geographies, and we remain focused on maintaining our leadership position in operating — offering differentiated travel and lifestyle benefits to our consumer and commercial customers as they return to travel.

Finally, on Slide 9, you see that our billed business momentum continues to be led by the US, where spending improved sequentially throughout 2021 and grew 16% above 2019 levels in the fourth quarter. International billed business has also shown continued steady though smaller improvement with spending almost fully recovered in Q4. Importantly though, growth in goods and services spending continues to be strong both in the US and outside of US.

Self, what to all of these takeaways mean for 2022 and beyond? Most importantly, we expect the strong momentum in goods and services spending to continue given the investments we’ve made in premium card member engagement, prospect acquisition, value propositions that particularly appeal to our Millennial Gen Z and SME customers, growing our coverage and expanding relationships with key partners.

For T&E, we expect the total global consumer and SME T&E spending will be fully recovered by the end of 2022 led by the growth in the US. The recovery will be slower for the international and cross-border components of the spend, we’ve also long said that large and global corporate T&E spending would be the last to recover across our customer types.

So these spending types may represent a steady tailwind in both ’22 and 2023 as they gradually recover.

Moving on to receivable and loan balances on Slide 10, we are seeing good sequential growth in our lending balances but is led by spending. And so the portion of our lending balances that are revolving is recovering more slowly. Because our balances are spend-driven, we do expect to continue to see a strong rebound with loan balances surpassing 2019 levels in 2022, but we expect it to take more time for the interest-bearing portion of these balances to rebuild as paydown rates continue to remain elevated due to the liquidity and strength amongst our customer base.

Turning next to credit and provision on slides 11 through 13, as you flip through these slides, there are a few key points I’d like you to take away. Most importantly, we continue to see extremely strong credit performance with card member loans and receivables, write-off and delinquency rates remaining around historical lows. As loan balances begin to rebuild more meaningfully, we do expect delinquency and loss rates to slowly move up over time, but we expect them to remain below pre-pandemic levels in 2022.

This strong credit performance combined with continued improvement in the macroeconomic outlook throughout 2021 drove a $1.4 billion provision expense benefit for the full year, as the low write-offs were fully offset by the reserve releases as shown on Slide 12.

As you see on Slide 13, we ended 2021 with $3.4 billion of reserves, representing 3.7% of our loan balances and 0.1% of our card member receivable balances respectively. This is well below the reserve levels we had pre-pandemic given the strong credit performance we’ve seen. In 2022, we will be growing over the $2.5 billion reserve release benefit we saw in 2021, since I would not expect to see reserve releases of the same magnitude going forward. In fact, depending on credit trends and the pace at which our balance sheet grows, it’s possible we may need to build some modest level of reserves.

Moving next to revenues on Slide 14. Total revenues were up 30% year-over-year in the fourth quarter, up 17% for the full year. This is well above our original expectations for the year, driven by the successful execution of our investment strategy and it is part of what emboldens us to launch our new growth plan.

Before I get into more details about our largest revenue drivers in the next few slides, I would note that other fees and commissions and other revenue were both up year-over-year in the fourth quarter and for the full year, primarily driven by the uptick in travel-related revenues we began to see in the second half of 2021. These travel-related revenue still remain well below 2019 levels, however, and their complete recovery will likely lag and be a tailwind into 2023 along with international and cross-border travel.

Turning to the largest revenue line, discount revenue, on Slide 15, you see it grew 36% year-over-year in Q4 and 25% for the full year on an FX adjusted basis. This growth is primarily driven by the momentum in goods and services spending we saw throughout 2021. Net card fee revenues have grown consistently throughout the pandemic and for the full year of 2021 were up 10% year-over-year and up 28% versus 2019, as you can see on Slide 16.

The resiliency of these subscription-like revenues demonstrates the impact of the investments we’ve made in our premium value propositions and the continued attractiveness of those value propositions to both prospects and existing customers. As a result, I expect net card fee growth to accelerate from these already high growth rates in 2022.

Turning to net interest income on Slide 17, you can see that it was up 11% year-over-year in the fourth quarter. This is the second consecutive quarter of year-over-year growth, as we clearly hit an inflection point in the second half of 2021. The growth in net interest income is slower than the growth in lending AR due to the strong liquidity demonstrated by our customers that I spoke about earlier, which is leading to both our historically low credit costs and to high paydown rates that are driving lower net interest yields and a slower recovery in revolving loan balances. Looking ahead, we expect net interest income to be a tailwind to our revenue growth in 2022 and likely 2023 due to the slower recovery in revolving loan balances.

So, to sum up on revenues. The successful execution of our investment strategy has driven the revenue recovery momentum, you see on Slide 18. Looking forward into 2022, we expect to see revenue growth of 18% to 20% driven by the continued strong growth in spend and card fee revenues and the lingering recovery tailwinds from net interest income and travel-related revenues.

The revenue momentum we saw in 2021 was clearly accelerated by the investments we made in marketing, value propositions, technology and people and those investments show up across the expense lines you see on Slide 19. Starting with variable customer engagement expenses at the top of Slide 19, there are a few things to think about. Most importantly, the investments we are making in our premium value propositions are resonating with our customers and this of course is driving growth in these expense lines. In addition, over the course of the pandemic, we added some temporary incremental benefits to many of our premium products in an effort we refer to as value injection because our customers were not able to take advantage of many of the travel-related aspects of our value propositions. The cost of this value injection effort generally showed up in the marketing expense line. Throughout 2021, we gradually wound down the value injection offers as our customers were again engaging more with the travel aspects of our value propositions, as well as with the new rewards and benefits we introduced through recent product refreshes.

This is all a good thing in terms of our long-term customer retention and growth prospects. It does however mean you see more year-over-year growth in these variable customer engagement costs. Putting all these dynamics together, I’d expect the variable customer engagement costs overall to run at around 42% of total revenues in 2022.

Moving to the bottom of the slide, iperating expenses were just over $11 billion for full-year 2021 and in line with 2020. In understanding our OpEx results however, it’s important to point out that we’ve benefited from $767 million in net mark-to-market gains in our Amex Ventures strategic investment portfolio in 2021 and that these gains are reported in the OpEx line. We also increased investments in the incredible areas of technology and our talented colleague base in 2021 and expect to continue to grow our investments in these areas this year. For 2022, we expect our operating expenses to be a bit over $12 billion and we see these costs as a key source of leverage relative to our much higher level of revenue growth.

Last, our effective tax rate for 2021 was around 25% and I’d expect a similar effective tax rate in 2022 absent any legislative changes.

Turning next to our marketing investments we are making to build growth momentum, you can see on Slide 20 that we invested around $1.6 billion in marketing in the fourth quarter and $5.3 billion for the full year as we continue to ramp up new card acquisitions while winding down our value injection efforts. We acquired 2.7 million new cards, up 54% year-over-year.

Steve emphasized the critical point, however, that in particular, we see great demand for our premium fee-based products with new accounts acquired on these products almost doubling year-over-year and representing 67% of the new accounts acquired in the quarter. Acquisitions of new US consumer and small business Platinum Card members were all-time highs this year with Q4 being a record quarter of new account acquisitions for both of these refresh products. Mch more importantly though than just the total number of cards, we focus, internally on the overall level of spend and fee revenue growth we bring on from these new acquisitions. We are pleased to see that the revenues from 2021’s acquisitions are trending significantly stronger than what we saw pre-pandemic. Looking forward, we expect to spend around $5 billion in marketing in 2022.

Turning next to capital on Slide 21, we returned $9 billion of capital to our shareholders in 2021 including common stock repurchases of $7.6 billion and $1.4 billion in common stock dividends on the back of a starting excess capital position and strong earnings generation. As a result, we ended the year with our CET1 ratio back within our target range 10% to 11%.

In Q1 2022, an another sign of our growing confidence in our growth prospects, we expect to increase our dividend by around 20% to $0.52 and to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth.

That brings me to our growth plan on Slide 22 and then we’ll open up the call for your questions. The combination of our pre-pandemic strategies, our learnings from the pandemic and the strong momentum we have achieved have all come together to embolden us to announce our new growth plan. What does that mean financially? In the near term, we expect our revenue growth to be significantly higher than our long-term aspiration due to the range of pandemic recovery tailwinds that I’ve talked about throughout my remarks, which is why we have given 2022 guidance of 18% to 20% revenue growth. We’ve also give an EPS guidance for 2022 of $9.25 to $9.65.

We feel good about this earnings guidance, as the momentum we have built on the revenue side helps us to grow over the number of notable items that benefited our 2021 results that we certainly don’t expect to repeat in the same magnitude in 2022, as I discussed the very beginning of my remarks this morning.

Our 2022 guidance does assume an economy that will continue to improve and reflects what we know today about the regulatory and competitive environment. It also assumes that based on current exchange rates, we would not see a significant impact from FX on our reported revenue growth in 2022. In 2023, we expect our revenue growth to remain above our long-term aspirational targets to go to due to the lingering recovery tailwinds which should create a platform for producing mid-teens EPS growth.

Longer term, as we get to a more steady-state macro environment, we have an aspiration of delivering revenue growth in excess of 10% and mid-teens EPS growth on a sustainable basis in 2024 and beyond.

In closing, we are committed to executing against our new growth plan and will be running the company with a focus on achieving our accelerated growth aspirations.

With that, I will turn the call back over to Vivian.

Vivian Zhou — Head of Investor Relations

Thank you, Jeff. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open the line for questions. Alan?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Ryan Nash with Goldman Sachs. Please go ahead.

Ryan Nash — Goldman Sachs. — Analyst

Hey, good morning everyone.

Steve Squeri — Chairman and Chief Executive Officer

Hey Ryan.

Jeff Campbell — Chief Financial Officer

Hey Ryan.

Ryan Nash — Goldman Sachs. — Analyst

So it’s good to hear about the better-than-expected 2024 plus long-term aspirations for in excess of 10% revenue growth and mid-teens EPS growth. So Steve, I would maybe talking — hoping you could maybe just talk about what is allowing you to drive this better structural growth, is it the investments you’re making, the brand resonating more with investors, and what are the key drivers and clearly you’re investing heavily in the near term. Jeff mentioned higher variable engagement costs, can you maybe just talk about what should give investors confidence that as we get to 2024, the business going to be able to drive operating leverage versus historically a view of reinvesting a lot into the business.

And just lastly, one point of clarification, Jeff, can you just clarify the platform for mid-teens EPS growth, were you mentioning that you expect mid-teens in ’23 or more than it was positioning you well for mid teens within ’24. Thanks.

Jeff Campbell — Chief Financial Officer

Well, maybe we work backwards. I’ll take the last one. I think the language on 2023 around EPS growth, Ryan, is meant to make the point that we are certainly, given the tailwind is going to drive again very high revenue growth and that creates a great platform for steady earnings growth. The caution there is just, you still have some volatility in how credit reserves may play out. And so when you think about sort of the total level of earnings in 2022 and ’23, I feel pretty confident. Could you have some result that moves reserve releases between one year and another which skew the actual year-over-year growth number a bit, you might, but I think the core earnings power will be there given the high revenue growth that Steve is going to talk about next.

Steve Squeri — Chairman and Chief Executive Officer

Yeah. But just to just talk about the operating leverage for a second too, because when you look at and Jeff mentioned that we had sort of the contract to operating expense with the venture gains this year. When you look at that, you will have operating expense leverage growth this particular year because you’re looking at 18% to 20% revenue growth. And if you sort of normal — even if you don’t normalize it, you’re going to have a much higher revenue growth and you will. So we’re still going to drive operating expense growth throughout this — throughout our journey. But let me talk to you about what gives me the confidence and when I look at sort of what we’ve done over the last four years, where we are now and how we’re exiting, what I would sum this up, is it’s a combination of three things. It is the strategy that we put in place. It is the secular tailwinds that we have and the momentum.

I’m going to start from the back and work my way forward. Look at the moment, I mean you’ve got 30% revenue growth in this particular quarter, you got 2.7 million cards that we acquired, you’ve got historically high billings growth, we haven’t gotten into this, but we see travel bookings. When we looked at travel bookings in the fourth quarter, it was 24% up over ’19. When we look at the first couple of weeks in January, we’re 44% up over ’19.

So we have tremendous momentum entering 2022 and I’ll move to the beginning go to strategy. We at the — back in 2018 and I made this in my remarks, we talked about being the premium card provider. And I think the skepticism was from Millennials and Gen-Z, that skepticism from my perspective is over, 60% of the cards that we acquired are Millennials and Gen-Z in this quarter; 75% of our premium cards were Millennials and within the next strategic imperative was SME. We had probably the best SME acquisition year that we’ve ever had. We talked about our ability to be in people’s digital lives with 31% online spending growth over 2019. And we had 16% online spending growth just over last year and look at what we’ve done from a merchant perspective, we’re parity in the US and we added over 7 million merchants, just last year internationally, and then look at the secular tailwinds. I think the pandemic has moved online spending forward for three years to five years and we’re getting more than our fair share. And then look at our business, we’re at 82% of the overall T&E business from from 2019. Now, consumers doing really well, in the fourth quarter, we were up 8%, but the rest of it is below 2019 levels. And so we believe from a T&E perspective, we’ve got more room to go.

When we look at our, as we segment our card members, Millennials are blowing it out. We had over 50% spending from Millennials in our Gen and Gen-Z increased over both 2019 and 2020 and as we look at sort of our Gen X is up and our boomers are not and our boomers traditionally hit once they travel and have money and once we get from pandemic to endemic here, they’re going to start traveling again.

Jeff talked about modest loan balances that will grow over time, which is the comment he made about some reserve increases, but we’re going to get back to where we were, we look at international consumer. International consumer tends to be a more traveling card member and that business is flat and large and global has not come back and I’ll leave you with this on large and global. People are skeptical about business travel because of all the remote workforce. In fact, I think business travel is going to be completely different. And I think as you have more people in more remote locations, they may need to get together three, four, maybe five times a year to come to headquarters or to come to locations where they never had to come to before. And let’s face it, we all realize that there is nothing better than sit in front of your customers. And I just came back from an opportunity at the Amex Golf Tournament to sit in front of a lot of my customers. So when we look at the secular tailwinds, that’s why we believe it’s not only doable but sustainable as we move forward.

Ryan Nash — Goldman Sachs. — Analyst

Thanks for taking my questions and apologize for packing so many in there.

Vivian Zhou — Head of Investor Relations

Alan?

Operator

Our next question will come from Betsy Graseck with Morgan Stanley.

Betsy Graseck — Morgan Stanley — Analyst

Hi, good morning.

Steve Squeri — Chairman and Chief Executive Officer

Hi, good morning. Good morning to you Betsy.

Betsy Graseck — Morgan Stanley — Analyst

I just wanted to dig in a little bit more on some of the opportunities that you were discussing. I mean when I sit from my seat, I’m wondering what type of penetration do you think you have in the US Millennial and Gen-Z, the numbers you just quoted were very impressive, but I’m wondering do you feel you’re at 90% of that market or 10%. Give us a sense as to how you’re thinking about that. And in addition, on the SME side where you’re the clear leader, where is the room for you to run, is it by increasing the product set, i.e. the revolving line of credit that you recently announced or is it more in acquiring new customers and really the question is what’s the TAM and what percentage of that TAM do you think you have right now in the various customer sets? Thanks.

Steve Squeri — Chairman and Chief Executive Officer

So let me start, Jeff can sort of jump in. Look, from a Millennial perspective, I don’t know exactly where we are. But what I can tell you is we’re not at the 90%. I’d be closer to the 10% than the 90% but Millennials and Gen-Z. So I think there’s a lot of opportunity and a lot of runway and maybe in Investor Day, we’ll try and give you some guidance on that and we’ll do a little bit of work on that.

From an SME perspective, look, we are — that’s right, we are the clear leader from an SME perspective. And I think when you look at the opportunity set, what we’ve said from an SME perspective is we want to be the total working capital providers and so you look at what we’ve done. What we’ve done is we’ve gone out there and now we’ve created with the acquisition of Kabbage we’ve created our — we have the checking account, we have the debit card, and checking account is important because that’s where all the flows of money come in and go out.

From a card perspective, we’ve always been in great shape. From a revolver perspective on the card, we don’t have the same share that we’ve had, and so we’ll push a little bit more on that revolver obviously on working capital loans and some of the other term loans, we will be pushing on as well. So we think when you put that together holistically, we have a lot of room for growth from an SME perspective not only in the US but in international where we leverage our international corporate card business and our position from a small consumer perspective to go after it.

So, we think both of those areas are still very, very right to grow.

Operator

Our next question will come from the Mihir Bhatia with Bank of America. Go ahead please.

Mihir Bhatia — Bank of America Merrill Lynch — Analyst

Good morning and thank you for taking my question.

Steve Squeri — Chairman and Chief Executive Officer

Hey Mihir.

Mihir Bhatia — Bank of America Merrill Lynch — Analyst

I just wanted to ask maybe we could talk a little bit about variable expenses, specifically what I’m wondering is just your guide actually seems to imply a little bit of operating leverage in that line item for next year, which just compared to this year. And I’m wondering what is driving that. Maybe you can give a little bit more color on the internal lines within that, the three different line items in there.

Jeff Campbell — Chief Financial Officer

Mihir, I didn’t get the very first part of your question.

Mihir Bhatia — Bank of America Merrill Lynch — Analyst

I’m sorry, I am saying your guidance of 42% of [indecipherable] as a percent of revenue is like lower than 2021, right. So I was just trying to understand maybe a little bit more which line items there is that the business development line or services, like what would be driving that.

Jeff Campbell — Chief Financial Officer

Yeah, okay. I will start. So there is a few things to think about when you think about that 42%. Remember, to start with, we started giving you this percentage because it was an easy way in a very volatile time during the pandemic, to help people think about all three of these lines. As you think about next year, I’d point out a number of our revenue lines are recovering more slowly. We talked about net interest income, we talked about other fees and commissions and other revenues, because a lot of that’s travel related. So in many ways, because spend has come in — come back more robustly because we are seeing great engagement from our customers with both our reward programs and our many card member services, those engagement behaviors are causing those costs to come back more quickly than a 100% of the revenues are coming back. So really in many ways, one of the reasons we’re very bullish about both ’22 and ’23 revenue growth being above our long-term aspiration is because you have the steady recovery as the other revenues recover.

The other thing I’d point out Mihir is that back to Steve’s comment on learnings from the pandemic and the investments we have made in our value propositions are clearly paying off when you look at our revenue growth, when you look at our acquisition results, and when you look at our retention and so, Boy, I would say it is a learning for us from the pandemic that investing, as you see in that 42% is the right thing to do to create a great platform for long-term growth for the company.

Operator

Our next question will come from Bill Carcache with Wolfe Research.

Bill Carcache — Wolfe Research — Analyst

Thanks, good morning, Steve and Jeff. So Amex was one of the few financials, if not the only to not cut its dividend during the global financial crisis. Steve how important to you is sustainability of the dividend, did that factor into your decision to increase it by 10% and I guess what do you view as an optimal level for your dividend payout?

Steve Squeri — Chairman and Chief Executive Officer

Well, what I’d say Bill is the dividend is important to us. It’s important to many of our shareholders and the fact that we’re raising it for the first time since 2019 is a sign that in our view, it’s time to be on the offense again and feel confident about our growth. All that said, we have a long-standing policy of having a payout that is around 20% to 25% on the dividend. With the tremendous growth in earnings this year and what we expect next year or in ’22, we fall a little bit behind that. And so we’re catching up really to that level, but that’s what shareholders should expect going forward. So the dividend will grow over time as our earnings grow. But you’re not going to see it grow incrementally as a payout but I think you pulled back to the financial crisis, Bill, it was important to show the stability on and just the resilience of the company during that time and that was an important signal to our shareholders. I believe, it showed our commitment to it. So it’s about it.

Operator

Our next question will come from Chris Donat with Piper Sandler. Please go ahead.

Steve Squeri — Chairman and Chief Executive Officer

Chris?

Vivian Zhou — Head of Investor Relations

Chris?

Chris Donat — Piper Sandler — Analyst

Can you hear me?

Steve Squeri — Chairman and Chief Executive Officer

Now we can.

Chris Donat — Piper Sandler — Analyst

Sorry —

Operator

Donat, you seem to have some trouble with your line. If you could please pick up hand set, check your mute feature. i’m sorry, we’ve lost Mr. Donat’s line. We’ll go next to Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch — Credit Suisse. — Analyst

Great, thanks. I just wanted to kind of focus a little bit on the cost side. And then you did the revenue guide is very strong clearly, and probably $2 billion to $3 billion above where consensus expectations were for 2022, but the high end of the EPS guidance is kind of where consensus is, so it sort of implies I guess between credit and costs roughly $3 billion more in there, is there a way to kind of think about the big categories, so that we can have a better idea of how that you don’t have that operating leverage post that comes through. Thanks.

Jeff Campbell — Chief Financial Officer

Well, Moshe, I will admit you were fading in and out a little bit. So I’m going to take a shot and what I think you just asked. I think when you look at our 2022 EPS guidance, I actually, the first one, I didn’t think it would be to point people back to the revenue guidance, right. So we’re all about growth and growing our revenues in that 18% to 20% on top of the 30% growth that we just showed in the fourth quarter we think is creating the kind of scaled platform that is the best platform for creating value in the long term for our shareholders.

Second point I’d make, when you think about 2022 earnings is as I said at the beginning of my remarks, you had around $3.5 billion of pre-tax items in the 2021 earnings, that I don’t expect to repeat. So $2.5 billion of credit reserve releases. I think we’re closer to a steady-state position on that. Another $1 billion on mark-to-market gains on both our FinTech portfolio and our Global Business Travel joint venture. And so we look at our 2022 earnings guidance and see ourselves growing over that $3.5 billion, while making the investments that Steve talked about in customers brand and colleagues to drive 18% to 20% revenue growth, Boy, and we feel really good about that outcome. And we think it creates a great platform for long-term sustainable growth.

Steve Squeri — Chairman and Chief Executive Officer

Yeah, I mean, look, simplistically, take $3.5 billion off the $10.02, call it $6.50, call it $6.70. So we see it going from that number to $9.20 to $9.65 and as we’ve always said we thought we’d be at the top end of the range of our 2020 plan and the guidance that we’ve given use the top end of our range, as the bottom end of our range. So we think it’s from a pure operating perspective, I think it’s a lot of operating EPS in 2022, you guys can decide whether you believe that or not. But the numbers are the numbers.

Operator

We’ll once again go back to the line of Chris Donat with Piper Sandler. Please go ahead.

Chris Donat — Piper Sandler — Analyst

Hi, can you hear me this time?

Steve Squeri — Chairman and Chief Executive Officer

We can, very clearly.

Chris Donat — Piper Sandler — Analyst

Okay. That’s a good — better thing I just wanted to ask around discount rate, if that factors in as one of the tailwinds you expect going forward as we think about the mix of your T&E businesses and the discount rates there and also with GNS and even online, do you pick up any tailwinds from expected mix shift in business with the recovery.

Jeff Campbell — Chief Financial Officer

Probably not. I mean because goods and services are growing so dramatically. Our traditional mix of business was 70-30, 70% goods and services and 30% T&E. We may wind up being at a steady state of 80-20. And so obviously as T&E does come back, and we’re at 82% of where we were in 2019, that’s a positive to the overall discount rate but goods and services tends to be a little bit lower, but look, at the end of the day, we’re driving discount revenue here. And that’s what we’re focused on. And so we’re very happy with the goods and services growth, in particularly, the online and what I would point out is not only is online growing but offline is growing as well, and it’s growing tremendously over over 2020. But when you look at it over 2019, I mean even offline retail for us is up over 12%, so you’ve got a combination of online — online retail up 31% over ’19 and you got offline up 12%. So we feel really good about how our card members are using the products.

Operator

We’ll go to the line of Bob Napoli for our next question with William Blair. Go ahead.

Bob Napoli — William Blair — Analyst

Thank you and good morning.

Steve Squeri — Chairman and Chief Executive Officer

Hey Bob.

Bob Napoli — William Blair — Analyst

Good morning, Steve. Good morning, Jeff. So, one of your competitors large bank I guess targeted lower returns because of the need for tech investment and to compete against I guess fintechs or, but what is your thought on the, what kind of investment do you have built in. How do you feel about the American Express tech stack and the need to invest and I guess as it relates to maybe blockchain and cryptocurrency potential disruptors to payment rails and buy now pay later as a disruptor to credit cards.

Jeff Campbell — Chief Financial Officer

Well, that’s a lot. Bob. Look, I think, and you know you and I’ve talked about this before. Look, we’ve continued to invest in our technology stack over time. And as you know I used to run technology many years ago and we’ve been committed to constantly refreshing our tech stack and making those investments and this year is no other, it’s not yeah, it’s not anymore than it’s been in years past. I mean from a tech development perspective, I would say we’re flattish as we think about 2022 up a little bit here or there. And from a tech operations perspective, you keep taking advantages and a reduced cost and then of course you then pivot more money into cyber because that — that’s constantly where you overall invest. Look, as far as buy now pay later and again, I’d made these comments many, many times. I do not believe this is targeted at our customers. Look, we have Pay It Plan It and Pay It Plan It is, we believe an offering our customers the opportunity to be as flexible with their payments as possible, and it gives you the ability to pick your installments and pay it over time. And we’ve had some increasing usage here, but it’s not a major driver of our growth, and if you look at the other types of buy now pay later, the Pay in 4 Gs, the reality is the charge card is almost a Pay in 4 because by the time you pay your on average you charge card off or your credit card and a non-revolve basis, you could be a 45 days anyway, so. And when we’ve looked at sort of buy now pay later and that target audience. It tends to be lower FICO, it tends to be debit card users and it tends to be utilized potentially as an acquisition tool and that’s just not how we play our game. So I’m not at all concerned with buy now pay later. I think you know some successful companies out there that are driving some revenue and are driving a lot of volume through buy now pay later, but again. we look at it as an option with our Pay It Plan It and the nice part about Pay It Plan It is, it’s not at the point of sale, because you can do it any transaction, it doesn’t just have to be at the point of sale where not everybody has a buy now pay later feature. So that’s that.

As far as crypto currency goes, you know, look, we watch crypto currencies and you guys have heard me talk about this, we think about the spectrum of digital currencies, we think about crypto, we think about stable coins, we think about Central Bank digital currency and you know at this particular point in time, we view more crypto currency as a an asset class. I mean you’ve just seen bitcoin go from $68,000 a coin to $34,000 a coin. Currencies that you use in the payment space, that’s a hard thing to utilize that way. So, and as far as Blockchain, look, we’ve got investments in Blockchain companies to be constantly look at Blockchain and figure out, are there use cases for us.

So, and as far as stable coins and FTEs and things like that, we’re partnering with obviously the NBA and Topshop and we’ll look at ways to get involved, but as I’ve said, we’re probably not going to offer a crypto card, doesn’t mean we wouldn’t use MR as a redemption option and I’ve said many times, it’s a digital currency in itself. So we keep our eye on it, keep our eye on — buy now pay later in case that side changes, we keep our eye cryptocurrency in case it becomes more stable, but right now, I don’t see it as a immediate or medium-term threat to our business.

Operator

Our next question will come from Arren Cyganovich with Citi. Go ahead.

Arren Cyganovich — Citi — Analyst

Thanks. I wonder if you could talk a little bit about your capital return plans for next year, obviously, nice increase in the dividend, but you’re at your CET1 target or within the range now at 10.5%, where do you think buybacks go from here particularly since you’re starting to grow your receivable balances by a decent amount?

Jeff Campbell — Chief Financial Officer

Well, we’re pretty committed to staying within that 10% to 11% range on the CET1 ratio, when I talked earlier about, the dividend will go up steadily as our earnings go up. The thing to keep in mind though is that we pretty uniquely also generate returns on equity in recent years in excess of 30%, so we produce a tremendous amount of capital each year, far more than we need to support the growth in our very spend-centric business model and the balance sheet that results from that.

So you’ll continue to see a steady level of share repurchase from us each quarter consistent with that kind of earnings generation and that kind of ROE and staying within our 10% to 11% range. Clearly, the big catch-up, there has been in the last two quarters where you saw a — what I will call above trend levels of share repurchase to get us right back down to that target range.

Operator

We’ll go next to Rick Shane with JP Morgan. Go ahead.

Rick Shane — JP Morgan — Analyst

Thanks guys for taking my questions. I mean one of the things that’s come up repeatedly is the strength of the Millennial Gen Z growth, when you look towards your revenue growth guidance, how much is embedded related to the sort of life cycle of a younger consumer and the growth that you would expect there or how does that play out over time?

Jeff Campbell — Chief Financial Officer

Well, I think when you see us very uncharacteristically talking about long-term aspirations in ’24 and beyond, a key part of that aspiration is looking at the demographics of who we’re bringing in and thinking about lifetime value of card members, right. We are a business with extremely high retention rates relative to almost any other business, you could think about. And when we acquire customers we are thinking about the lifetime value of those customers. That’s one of the things that contributes to the excitement that Steve started the call off with when we think about the longer-term growth prospects of the demographic that we are increasingly bringing into the company.

Operator

We’ll go to the line of Mark DeVries with Barclays. Go ahead.

Mark DeVries — Barclays — Analyst

Yeah, thanks. And this may be somewhat related question to what Rick just asked, if I look at the 2024 kind of aspirational growth plan, it looks like you’re almost back to kind of a pre-financial crisis growth algorithm with a pretty healthy spread between revenue growth and EPS growth as opposed to like the years prior to the pandemic, there is a much tighter spread. Is that a fair observation. And if so, what’s different. Are you expecting more operating leverage, is this higher return business you’re bringing on kind of what’s behind that?

Jeff Campbell — Chief Financial Officer

Well, maybe I’ll start Steve and so first, Mark, I think I’d remind everyone our what we at the time we refer to as our financial growth algorithm pre-pandemic which we very successfully executed on for 10 straight quarters till the pandemic interrupted, was to have revenue growth in the 8% to 10% range and double-digit EPS growth. So we have much bolder ambitions now to be in excess of 10% of the revenue growth side and mid — [Technical Issues]

Operator

This is AT&T, we have lost your voice line, if you could check your mute feature. We’ve lost the host connection. If you could please check your mute feature please. Ladies and gentlemen, please standby.

Jeff Campbell — Chief Financial Officer

We have lost the connection.

Operator

You are back on your line.

Jeff Campbell — Chief Financial Officer

We are?

Vivian Zhou — Head of Investor Relations

Yes,

Jeff Campbell — Chief Financial Officer

Are we back, Alan?

Operator

Yes, you are connected.

Jeff Campbell — Chief Financial Officer

Okay. We have no idea why we lost the connection, which is a little unnerving head I’ve just started. Alan?

Operator

You had gotten into a little bit. I’m not sure exactly how far you went.

Jeff Campbell — Chief Financial Officer

I want to start again. Okay. So sorry, so apologize everyone not quite sure where the tech problem is, we’re sitting in our office in the Tower in New York. So pre-pandemic, we were at 8% to 10% revenue growth, double-digit EPS growth like clockwork. We executed on that for 10 straight quarters until the pandemic interrupted. We see ourselves being a much bolder aspiration now in excess of 10% revenue growth, mid-teens EPS growth and that’s going to come after a ’22 and ’23 at higher levels than that in terms of revenue growth and that kind of revenue growth, gives us a tremendous platform for scale for relevance and forgetting steady leverage on the marketing line and on the OpEx line because, Boy, you don’t need to grow marketing and OpEx in anywhere near those kinds of rates. So that’s the math maybe you want to comment.

Steve Squeri — Chairman and Chief Executive Officer

Yeah, no, I would just say, look, we’ve been on, you mentioned pre-financial crisis. And yes, pre-financial crisis, there were years where we were in excess of 10% revenue growth and then post financial crisis. I mean the game changed post financial crisis, not only from a competitive perspective, but from a regulatory perspective. And then we are more mid-single digits sort of revenue growth. But the other thing I’d say is we’re much larger company right now as well. And so when you start to think about 2024 and you think about revenue growth, you are looking at excess of $6 billion per year in revenue growth. So I think when you start to look at those numbers and put those in perspective. In contrast, those 2 pre and post-financial crisis, they are quite different. But as I said, we have all the faith in our strategy in a — look, in a highly competitive environment, but if you think about what’s moving us as I started this call with what’s moving us right now to even higher revenue growth in the next two years is the fact that we’ve got some catch up to do with our with our core business in the areas that I mentioned in terms of T&E and in loan growth and in large and global and certainly in international. And then as we move and get to a more steady state, that’s what — again just this reliance of the strategy that we’ve implemented and as Rick just mentioned and Jeff answered the question in terms of the lifetime value and the focus on Millennials and Gen Z and whatever the next generation is going to be after this, that’s going to be a key to our strategy as we expand the universe of card members from a premium perspective. So you will see how it all plays out, but we are very, very confident.

Operator

Our next question will come from Lisa Ellis with MoffettNathanson.

Lisa Ellis — MoffettNathanson — Analyst

Terrific. Thanks for squeezing me in. And a question about the investment plan support thing that 2024 outlook and beyond, can you talk about the role of M&A tuck-in M&A or I guess I’m thinking more broadly about adjacent areas that you’re focused on investing in as you build toward that kind of two- to three-year out plan. I think about things like Kabbage and resi like you’ve done in the past.

Jeff Campbell — Chief Financial Officer

Yes, I think, at least, I think the way to think about this is, look, there is no singular investment target that we are looking at, but I think you hit the nail on the head. We look at iadjacencies that make sense. Then as we think about the strategies for the product, I mean, as we move into — as we moved into a broader definition of how we were going to serve SMEs, the Kabbage platform made all the sense in the world. Look, you had three choices there, you could have tried to build it, you could buy it or you could try and partner with it. And so it was an opportune time and we were able to buy it and that’s how we’re re-platforming our SME base. When you think about what we’ve done from a consumer perspective and resi is a good example of that. Is that, you know it’s an extension of our overall travelness of the product and an investment in resi giving access to our card members to dining and it’s also a great acquisition tool for customers because resi is not an Amex only product, it has some Amex-only offers for our customers. So as we continue to build out the strategy, we will make those determinations whether it makes sense for us to build it ourselves, partner or buy it and we’ll tuck those things in if and when they when they make sense and if the overall price is right. So that’s how we’ll think about it, but you know just bring you back to the four strategic imperatives that we have, which is continuing to be the best premium card provider for consumer, looking at being that working capital provider for SME, becoming even more digital to our customers and adding more and more merchants and as things make sense along that strategic continuum, we will act if appropriate.

Operator

Our next question will come from Don Fandetti with Wells Fargo.

Don Fandetti — Wells Fargo. — Analyst

Hey, good morning. Good to see [Technical Issues] EPS. I don’t know, can you guys hear me?

Jeff Campbell — Chief Financial Officer

Yeah, yeah, we can hear you, Don.

Don Fandetti — Wells Fargo. — Analyst

Okay. All right. Good to see the mid-teens growth ’24 and beyond. I mean I think we all sort of think of low double digits. Good to see. I guess. Steve, could you dig in a little bit on January and December Omicron slowdown. And maybe just talk about, did you see it dip, what kind of dip and has it stabilized. Just to give us some comfort on where things are.

Steve Squeri — Chairman and Chief Executive Officer

You know, for us, I think one of the — most leading — the biggest leading indicator for us of what’s going on is how people want to travel, right, because as we know, people have shopped online. We haven’t seen much of a slowdown from a goods and services perspective, what really is the delineating factor is are people out and about, and we talked about the fourth quarter as being 24% up from a travel bookings perspective. However, the last few weeks of December, we did see slowdown in terms of some of our travel bookings as people got and rightfully so a little Omicron, nervous, but the first two weeks in January, our travel bookings are up 44% over 2019. So what that tells me is people are ready to get out and get out and about again and we’ll see when Omicron peaks and when we get the next variant. But I think society is learning how to deal with this. And as Ed Bastian [Phonetic] said on his earnings call, I think we will ultimately move from pandemic to endemic and we’ll learn how to deal with this. So we really haven’t seen a slowdown in our billings at all. In fact, we’ve seen an acceleration in travel bookings. So that gives us a lot of confidence.

The other thing I would say though is that remember from a consumer perspective, we’re back, I mean from a T&E perspective, we were at — we were up 8% over 2019 from a consumer perspective in the fourth quarter and we anticipate that moving further north.

Operator

Our final question will come from Sanjay Sakhrani with KBW.

Sanjay Sakhrani — KBW — Analyst

Thanks, good morning. i want to ask the aspirational guidance or long-term aspirational question again. But if we think about sort of the long-term revenue algorithm, right, is there anything that you’re seeing inside your customer base, whether it’d be higher unit economics on the new accounts or evolving mix shift from different businesses, that’s going to drive that above average revenue growth relative to history, I guess it would be good, and maybe this is an Investor Day thing, if you could, to just understand sort of what the key drivers will be as we look out, whether it’d be the baseline for economic growth versus share shift versus the different segments, right, like B2B et cetera. Yeah, I don’t know — that’s an open-ended question, but I’m just curious about your response to it.

Steve Squeri — Chairman and Chief Executive Officer

Yeah. I got it. All right, you help us a little bit what our outline for Investor Day. Thank you. But you know, look, I think one of the things that people don’t take into account when thinking about future revenue growth is retention of card members. One of the big drivers of our growth has been the fact that it’s a lot easier when you keep onto your card members who are with you and spending and so forth and retention of card members, is at an all-time high. The other thing that’s driving this is obviously the shift from a goods and services perspective, I mean, look, we grew — we had more billings in 2021 than we had in the history of the company and we’re at 82% of our overall T&E billings in 2019 and theoretically we’re known as a T&E product, right. So I think we’ll talk about this, but I think there are a number of things. I think it’s retention. I think as Jeff mentioned before in response to Rick’s question the lifetime value of card members obviously getting card members earlier in their life, you’re going to keep them longer especially if you have the retention rates that we have. We’ll continue from an SME perspective to above our product set and if evolve our revenues and we’ll continue to bring loan balances back to — we were above average industry growth from a loan balances perspective and we think we’ll get back there. So look, we’ll give you some more insight on that, but I think those sort of from a high level perspective, those are the things that give us all the confidence in the world.

Vivian Zhou — Head of Investor Relations

With that. we will bring the call to an end. Thank you again for joining today’s call and for your continued interest in American Express, the IR team will be available for any follow-up questions. Alan, 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 the digital replay of the call at 866-207-1041 or area code 402-970-0847. The access code is 4117520 after 1:00 PM Eastern Time today, January 25 through midnight February 1. [Operator Closing Remarks]