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Amazon Stock Falls on Mixed Earnings Report and Weak Forecast. AWS Missed Too.

Amazon Stock Falls on Mixed Earnings Report and Weak Forecast. AWS Missed Too.

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Ford (F) earnings Q4 2022

Ford (F) earnings Q4 2022

Ford CEO Jim Farley takes off his mask at the Ford Built for America event at Fords Dearborn Truck Plant on September 17, 2020 in Dearborn, Michigan.

Nic Antaya | Getty Images

DETROIT- Ford-Motor is set to report its fourth-quarter earnings after the bell Thursday. Here’s what Wall Street is expecting, according to Refinitiv consensus estimates:

  • Adjusted earnings per share: 62 cents
  • Automotive revenue: $40.37 trillion

In October, Ford confirmed its prior full-year guidance of adjusted earnings before interest and taxes of between $11.5 billion and $12.5 billion. Through the first three quarters of the year, its brought in $7.9 billion, led by its North American operations.

If Ford meets or exceeds Wall Street’s top- and bottom-line expectations, EPS would more than double the 26 cents it reported for the same period a year earlier. Revenue would be an increase of 14.5% from the fourth quarter of 2021.

While investors will be monitoring the fourth-quarter results for signs of any waning consumer demand or profit dilution, Ford’s 2023 guidance is expected to be more of a focus.

Wall Street expects Ford’s full-year 2023 adjusted earnings per share outlook to mark a nearly 16% decline from 2022, according to Refinitiv estimates. That’s despite forecasting full-year revenue up 3.4% year over year to more than $151 billion, signaling lower operational profit compared with recent years.

Automakers have posted record or near-record results during the coronavirus pandemic amid a tight supply of new vehicles and resilient consumer demand. But that scenario is slowly normalizing, leaving new vehicle prices and profits in flux.

On Monday, Ford cut the price of its electric Mustang Mach-E, an early sign of a burgeoning EV price war spurred by You’re here.

Earlier Thursday, Ford reported January new vehicles sales that showed slight improvement over the same period last year.

There’s pressure on Ford to deliver a strong fourth quarter and relatively solid guidance. Crosstown rival General Motors on Tuesday significantly outperformed Wall Street’s expectations. The automaker also forecast stronger-than-expected 2023 results, including adjusted earnings before interest and taxes of $10.5 billion to $12.5 billion and adjusted earnings per share of between $6 and $7.

This is breaking news. Please check back for updates.

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Shares slip despite profit beat

Shares slip despite profit beat

A statue is pictured next to the logo of Germany’s Deutsche Bank in Frankfurt, Germany, September 30, 2016.

Kai Pfaffenbach | Reuters

Deutsche Bank on Thursday reported its 10th straight quarter of profit, but shares retired as analysts honed in on an uncertain outlook and weakness in the investment bank.

Deutsche Bank reported a 1.8 billion euro ($1.98 billion) net profit attributable to shareholders for the fourth quarter, bringing its annual net income for 2022 to 5 billion euros, a 159% increase from the previous year.

The German lender almost doubled a consensus estimate among analysts polled by Reuters of 910.93 million euro net profit for the fourth quarter, and exceeded a projection of 4.29 billion euros on the year.

Despite the lofty net profit figures, Deutsche Bank shares were 2.4% lower by mid-morning in Europe as analysts honed in on the uncertainty of the macroeconomic outlook, evidenced by the bank’s reluctance to issue a share buyback at this stage.

Amit Goel, co-head of European banks equity research at Barclays, characterized the results as “a bit mixed,” given that the strong revenue message for 2023 was offset by a weaker-than-expected fourth quarter in many other metrics, particularly the investment bank.

“The revenue miss vs consensus and our estimate was also largely driven by lower IB and corporate center result partly offset by better corporate bank; within the IB both FIC and origination and advisory were lower,” Goel noted.

Total revenues at the investment bank fell 12% year-on-year in the fourth quarter. Its contribution to Deutsche Bank’s core bank pre-tax profit fell 6% to 3.5 billion euros.

Restructuring plan

The bank’s full-year results follow a sweeping restructuring plan, announced in 2019, to reduce costs and improve profitability. It saw Deutsche Bank exit its global equities sales and trading operations, scaling back its investment bank and slashing around 18,000 jobs by the end of 2022.

The result marks a significant improvement from the 1.9 billion euros reported in 2021, and CEO Christian Sewing said the bank had been “successfully transformed” over the last three and a half years.

“By refocusing our business around core strengths we have become significantly more profitable, better balanced and more cost-efficient. In 2022, we demonstrated this by delivering our best results for fifteen years,” Sewing said in a statement Thursday.

“Thanks to disciplined execution of our strategy, we have been able to support our clients through highly challenging conditions, proving our resilience with strong risk discipline and sound capital management.”

Post-tax return on average tangible shareholders’ equity (RoTE), a key metric identified in Sewing’s transformation efforts, was 9.4% for the full year, up from 3.8% in 2021.

Other quarterly highlights include:

  • Loan loss provisions stood at 351 million euros, compared to 254 million euros in the fourth quarter of 2021.
  • Common equity tier 1 (CET1) ratio — a measure of bank solvency — came in at 13.4%, compared to 13.2% at the end of the previous year.
  • Total net revenue was 6.3 billion euros, up 7% from 5.9 billion euros for the same period in 2021 but slightly below consensus estimates, bringing the annual total to 27.2 billion euros in 2022.

Deutsche also recommended a shareholder dividend of 30 cents per share, up from 20 cents per share in 2021, but did not announce a share buyback.

“On the share repurchases, given the uncertainty of the environment today that we see, also some regulatory changes that we’d like to see both the timing and the extent of, we’re holding back for now. We think that’s the prudent action to take, but we intend to revisit that,” CFO James von Moltke told CNBC on Thursday.

He added that the bank would likely reassess the outlook in the second half of this year, and reaffirmed Deutsche’s target for 8 billion euros in capital distributions to shareholders through to the year 2025.

Deutsche’s corporate banking unit posted 39% growth in net interest income, aided by “higher interest rates, strong operating performance, business growth and favorable FX movements.”

Fourth quarter ‘tailed off’

The bank said some tailwinds were offset by a slump in dealmaking that has affected the wider industry in recent months.

“The fourth quarter tailed off a little bit for us in November and December, but still was a record quarter in our FIC (fixed income and currencies) business for a fourth quarter, 8.9 billion [euros] for the full-year,” CFO von Moltke told CNBC’s Annette Weisbach.

“We’re thrilled with that performance but … it came a little bit short of analyst expectations and our guidance late in the year.”

He said that January had been a month of strong performance for the bank’s trading divisions, as market volatility persisted.

“That gives us some encouragement that our general view, which was that volatility and conditions in the macro businesses would taper off over time, but would be replaced if you like from a revenue perspective with increasing activity in micro areas like credit, M&A, equity and also debt issuance,” he said.

“We see that still intact as a thesis of what ’23 will look like.”

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Oil giant reports record annual profits

Oil giant reports record annual profits

Shell said last month that windfall taxes imposed by the European Union and UK following the surge in profits would cost the group about $2 billion.

Paul Ellis | dpa | Getty Images

British oil giant Shell on Thursday posted its highest-ever annual profit, bolstered by soaring fossil fuel prices and robust demand since Russia’s full-scale invasion of Ukraine last year.

Shell reported adjusted earnings of $39.9 billion for the full-year 2022. This comfortably surpasses the $28.4 billion in 2008 which Shell said was the firm’s previous annual record and is more than double the firm’s full-year 2021 profit of $19.29 billion.

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Analysts polled by Refinitiv had expected full-year 2022 net profit to come in at $38.3 billion.

For the final quarter of 2022, Shell reported adjusted earnings of $9.8 trillion.

Shell announced a $4 billion share buyback program, which is expected to be completed by its first-quarter 2023 results — due out by early May — and a 15% dividend per share increase for the fourth quarter.

“It is a huge year for Shell and a huge year to look back on as well,” Shell CEO Wael Sawan told CNBC’s Steve Sedgwick in his first earnings interview since taking on the role on Jan. 1.

“I feel privileged to be stepping into this role at such a great point in the company’s history. As we look ahead, I think we have a unique opportunity to be able to succeed as the winner in the energy transition. We have a portfolio that I think is second to none,” Sawan said.

“My focus will be very much around performance and capital discipline,” he added.

The results follow in the footsteps of historic annual earnings for US oil majors Exxon Mobil and Chevron, with the West’s largest oil and gas companies expected to rake in combined profits of nearly $200 billion for the year, according to Refinitiv data.

The extraordinary scale of the industry’s earnings has renewed criticism and sparked calls for a Big Oil windfall profit tax.

Shell said last month that it expected to take a $2 billion hit for the final three months of 2022 as a result of new taxes in the European Union and the UK

“Ultimately, taxes are a matter for governments to decide on. We, of course, engage and provide perspectives and the key perspective that we try to provide is a context around the fact that companies like ourselves that need to invest multiple billion dollars to support the energy transition requires a secure and stable investment climate,” Sawan said.

“For example, windfall taxes or price caps simply erode confidence in that investment stability and so I do worry about some of the moves being made,” he continued.

“I think there is a different approach that needs to be had which is to really draw investment capital at a time when we need to be able to embed energy security into the broader energy system here in Europe.”

Shares of the London-listed company rose 0.6% during early morning deals on Thursday.

‘Energy trilemma’

Shell said its cash capital expenditure outlook for 2023 sits between $23 billion to $27 billion. Of that, Sawan said roughly one-third if not slightly more would go into areas like renewables.

Shell, which is aiming to become a net-zero emissions business by 2050, said that adjusted earnings for its Renewable and Energy Solutions unit came in at $293 million for the final three months of 2022, down from $383 million in the third quarter.

“Shell can’t claim to be in transition as long as investments in fossil fuels dwarf investments in renewables,” said Mark van Baal, founder of Dutch group Follow This.

“The bulk of Shell’s investments remain tied to fossil fuel businesses, because the company doesn’t have a target to slash its total CO2 emissions this decade, as is required to reach Paris.”

In recent quarters, Big Oil executives have defended their rising profits and said the significant disruption to global energy markets due to the war in Ukraine has reaffirmed the importance of helping to solve “the energy trilemma.”

According to a statement to investors from BP CEO Bernard Looney late last year, this refers to “secure, affordable and lower carbon energy.”

Climate campaigners and activist shareholders have been sharply critical.

“That Shell’s annual profits more than doubled last year, while millions of people have been facing the impossible choice between putting food on the table and heating their homes, is simply staggering,” said Sana Yusuf, climate campaigner at Friends of the Earth.

“People can see the injustice of paying eye-watering energy costs while big oil and gas firms rake in billions,” Yusuf said.

US oil giant Exxon Mobil on Tuesday reported a $56 billion profit for 2022, marking a historic high for the Western oil industry, while Chevron on Friday posted a record $36.5 billion profit for last year.

British oil major BP is scheduled to report full-year earnings on Feb .7, with France’s TotalEnergies slated to follow on Feb. 8.

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Peloton CEO Barry McCarthy doesn’t care Bikes, Treads lose money

Peloton CEO Barry McCarthy doesn't care Bikes, Treads lose money

Barry McCarthy speaks during an interview with CNBC on floor of the New York Stock Exchange (NYSE), October 28, 2019.

Brendan McDermid | Reuters

Platoon CEO Barry McCarthy told investors Wednesday he doesn’t care that the company is losing money on its Bike, Tread and Row equipment. The business’s “path to the promised land,” he said, is its mobile app.

Peloton posted negative margins during the holiday quarter for its pricey connected fitness products, but McCarthy said he’s more concerned with aggregate margins, which were in the positive thanks to the company’s subscription revenue.

“We take a holistic view of the revenue stream and the expenses associated with both the hardware and the subscription associated with it. So from my part, I don’t particularly care about the hardware margin,” McCarthy said during the company’s earnings call.

“I care about it on an aggregate basis, and I care about the relationship between the lifetime value of the customer relative to the cost of acquisition,” he said.

In Peloton’s fiscal second quarter of 2023, ended Dec. 31, the exercise equipment company lost $42.8 million on its connected fitness products, bringing the division’s gross margin to negative 11.2%.

The company’s overall gross margin of 29.7% was kept afloat by the $277.9 million Peloton made from its subscription business, at a margin of 67.6%.

While subscription revenue was effectively flat quarter over quarter, it exceeded sales from Peloton’s connected fitness products for the third quarter in a row. McCarthy told CNBC it signals a possible “turning point” for the company.

When asked about how the app, which features on-demand workout classes from the company’s pseudo-celebrity instructors, fits into the exercise equipment company’s overall strategy, McCarthy said his primary goal is to expand Peloton’s total market share by reaching a user base that it hasn’t been able to access before.

The cost of the app, which doesn’t require any Peloton equipment, is $12.99 per month compared with the $44 monthly cost for the company’s all-access membership that can be used on its connected fitness equipment.

“I think of it as its own endgame,” McCarthy said.

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Peloton (PTON) Q2 earnings 2023

Peloton (PTON) Q2 earnings 2023

Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.

Michael Loccisano | Getty Images

Platoon Wednesday said its net loss narrowed year over year, and, for the third quarter in a row, subscriptions revenue was higher than sales of the company’s connected fitness products.

CEO Barry McCarthy called the results a possible “turning point” for the business, which has spent much of the past year executing an aggressive turnaround strategy.

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The fitness equipment company’s fiscal second quarter revenue beat Wall Street’s expectations, but the company posted wider losses per share than expected. Peloton’s stock jumped about 7% in premarket trading.

Here’s how Peloton did in the three months that ended Dec. 31 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Loss per share: 98 cents vs. 64 cents expected
  • Revenue: $792.7 million vs. $710 million expected

The company’s reported net loss for the three-month period that ended Dec. 31 was $335.4 million, or 98 cents per share, compared with a loss of $439.4 million, or $1.39 per share, a year earlier. While it’s the eighth quarter in a row the exercise company has reported losses, it’s the narrowest loss Peloton has marked since its 2021 fiscal fourth quarter.

Revenue dropped 30% compared to the year ago period but exceeded the company’s expected range of $700 to $725 million. Connected fitness product sales, which are typically strong during Peloton’s holiday quarter, dropped 52% year-over-year while subscription revenue jumped 22%.

“This is the time of year when, if we’re going to sell a lot of hardware, we have so you would expect there to be lots of hardware related revenue, and you would expect that maybe that revenue would exceed subscription,” McCarthy told CNBC. “It didn’t. It’s why in the letter [to investors]I call it out, as it may be a turning point.”

In his letter to investors, McCarthy said he expects the trend to continue.

The company ended the quarter with 6.7 million total members and 3.03 million connected fitness subscriptions, which is a 10% jump compared to the year ago period. The company counted 852,000 subscribers to its app, a 1% drop compared to the year ago period. It has a goal of getting 1 million people to sign up for trials of its app over the next year.

Peloton is losing money on Bikes, Treads and other machines, but its subscription business has once again kept its overall margins above water. Gross margins for its connected fitness products were negative 11.2%, but gross margins for subscription sales were 67.6%. The total gross margin was 29.7%, up from 24.8% in the year ago period. It declined from the previous quarter, however, driven in part by increased promotions in the holiday quarter.

Peloton expects revenue to be lower but margins higher in the next quarter. The company is forecasting sales between $690 million to $715 million and a total gross margin of about 39%. Wall Street analysts pegged their revenue estimate for the quarter at $692.1 million.

The company is also expecting connected fitness subscribers to be between 3.08 million and 3.09 million.

Next phase of the turnaround

Peloton, which boomed during the earlier days of the pandemic, has been in the midst of a broad turnaround strategy under McCarthy, who took the helm of the business a year ago.

The company’s stock is up about 62% so far this year, closing at $12.93 on Tuesday, giving it a market value of about $4.4 billion. Shares are well off their 52-week high of $40.35, which they hit around the time McCarthy became CEO.

“The viability of the business was very much in doubt when I walked in,” said McCarthy, a former Spotify and netflix executive. “It probably wouldn’t be an overstatement to say there were some people who didn’t expect us to survive this long.”

Since he took over, McCarthy has cut Peloton’s workforce by more than half, expanded its Bike rental program nationwide, started selling certified pre-owned Bikes, started a rowing machine and partnered with Amazon and Dick’s Sporting Goods to sell its Bikes and Treads.

McCarthy’s top priority was to manage cash flow and get the company out of the red, a goal he said the company has nearly accomplished. Free cash flow was negative $94.4 million, compared with negative $246.3 million in the previous quarter and negative $546.7 million in the year-ago period.

McCarthy said he’s ready to pivot from trying to keep the company alive to growing it, he told CNBC.

“Now that we’ve addressed the viability issues, let’s get back to thinking about growth and the future of the business, like full stop,” said McCarthy.

“So there are a bunch of initiatives that we’ve announced that position us to pursue growth,” he added. “And the question we need to answer for investors now that we’re not talking about viability is how fast, how profitable, where’s it coming from, and over time we’ll begin to address some of those questions.”

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UBS earnings Q4 and FY 2022

UBS earnings Q4 and FY 2022

UBS‘ fourth-quarter profit beat market expectations, but the Swiss banking giant reported a fall in revenues on the back of weaker client activity and warned of an “uncertain” year ahead.

The bank reported $1.7 billion of net income for the fourth quarter of last year, bringing its full-year profit to $7.6 billion in 2022. Analysts had expected UBS to post net income of $1.3 billion in the fourth quarter and of $7.3 billion for the year , according to Refinitiv data.

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The bank’s Global Wealth Management unit posted a fourth-quarter increase in net interest income of 35% on the year, given higher deposit margins off the back of higher interest rates. Its Personal and Corporate Banking division also recorded a 21% year-on-year hike in net interest income over the same period, as a result of higher interest rates and loan revenues.

But market uncertainty hits the investment banking and asset management arms of the business. The former saw a 24% yearly drop in revenues, whereas asset management revenues fell by 31% year-on-year due to the “negative market performance and foreign currency effects.”

“The rate environment is helping the business on one side, and that offsets some of the lower activity that we see on the investment side,” CEO Ralph Hamers told CNBC’s Geoff Cutmore on Tuesday.

UBS reported fourth quarter and full-year earnings.

Fabrice Coffrini | dpa | Getty Images

He added that there had been a shift in the markets that put pressure on the investment side of the bank.

“We saw a move from what we would call micro focus, which is equity-focused, to macro focus, which is rates focused,” he said, noting that the Swiss bank was not able to benefit from that transition as much as some of its peers, given its smaller presence in the US

Here are some other highlights from the results:

  • CET 1 capital ratio, a measure of bank solvency, stood at 14.2%, down from 14.4% in the previous quarter;
  • Total revenues dropped to $8 billion from $8.7 billion a year ago;
  • Return on tangible equity, a measure of banks’ performance, rose to 13.2% at the end of the quarter, up from 10% a year ago.

‘Uncertain’ outlook

Looking ahead, the Swiss lender said that revenues for the first quarter of 2023 were set to be “positively influenced” by higher client activity and interest rates, as well as by the easing of Covid-19 restrictions in Asia.

However, it was cautious about the economic outlook more broadly, citing central bank activity as a potential catalyst for market volatility.

“While inflation may have peaked in the second half of 2022, and an energy crisis in Europe seems likely to be averted, the outlook for economic growth, asset valuations and market volatility remains highly uncertain, and central bank tightening may have an impact on market liquidity,” the bank said its earnings release.

UBS said it will be purchasing more of its own shares this year.

“We remain committed to a progressive dividend and expect to repurchase more than $5 billion of shares in 2023,” Hamers said in a statement accompanying the results.

Shares in the bank are up by about 15% over the last 12 months.

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Investors dangerously ignoring bear market impact on earnings

Investors dangerously ignoring bear market impact on earnings

Famous short seller Jim Chanos sees an alarming trend in the market.

“I’ve been on the Street [since] 1980 [and] not one bear market has ever traded above nine times to 14 times the previous peak earnings,” the Chanos & Co. founder told CNBC’s “Fast Money” on Monday.

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His latest warning comes in the midst of earnings season, two days before the Federal Reserve decision on interest rates and four days before the key January employment report. According to Chanos, the market will not be able to overcome rising rates and falling corporate profitability.

“Things are not cheap,” said Chanos, who acknowledges stocks are still cheaper than 18 months ago. “But people are pricing in a pretty nice Goldilocks scenario.”

So far this year, the S&P500 is up almost 5%, with media, technology and airlines leading the gains. On Tuesday, the index fell 1.3% to close at 4,017.77.

Chanos notes the market is anticipating corporate profits rising 12% this year, 2% inflation and a Fed rate cut within the next six to seven months.

“That’s pretty much nirvana if you’re a bull,” he said.

Chanos, who said he doesn’t try to time the market, doubts the bullish scenario will unfold.

“If you think earnings are peaking now at $200, that’s a long way down,” Chanos said. “That’s 1,800 to 2,800 [on the S&P 500]. We are not anywhere near that.”

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Ford, General Motors demand in focus during earnings

Ford, General Motors demand in focus during earnings

Attendees view a Ford Mustang Mach-E GT during opening day of the 2022 New York International Auto Show (NYIAS) in New York, on Friday, April 15, 2022.

Jeena Moon | Bloomberg | Getty Images

DETROIT – Let’s talk about pricing power.

At least, General Motors and Ford-Motor likely will be doing that this week as they report fourth-quarter results and 2023 guidance, with Wall Street watching for signs of weakening consumer demand and a tougher pricing landscape.

Either issue would mean lower profits this year for the automakers, which are expected to report relatively solid fourth-quarter results over subdued year-ago earnings. GM is expected to report fourth-quarter earnings per share of $1.69, a 25% increase over the year-ago period, while Ford is expected to report EPS of 62 cents, more than doubling the 26 cents it posted a year earlier, according to Refinitiv consensus estimates.

Automakers have reported record results in recent years amid the tight supply of new vehicles and resilient consumer demand. They have banked on sustained pent-up demand as inventory levels normalize, hoping to avoid heavy discounts or incentives to move vehicles.

But that scenario is slowly neutralizing. And that leaves new vehicle prices and profits in flux.

Cox Automotive reports the Detroit automakers have among the highest inventory levels in stock, noting vehicle numbers differ greatly by brand. Plus, incentives are slowly rising.

There’s overall concern that the pent-up demand was largely eroded amid recessionary fears and affordability issues resulting from rising interest rates and record-high prices of nearly $50,000 on average for a new vehicle.

Ford on Monday cut the starting prices on its electric Mustang Mach-E, weeks after EV industry leader You’re here slashed its own prices.

Duncan Aldred, head of GM’s GMC brand, reported the truck and SUV brand expects to continue increasing its average transaction price, which he said hit a new record of more than $63,405 during the fourth-quarter.

Those rising transaction prices are due in part to redesigned pickups and the launch of the electric Hummer SUV, which tops more than $110,000. GM started production of that SUV this week at a plant in Detroit, the company said during a media roundtable Monday.

GM is scheduled to report its results Tuesday before markets open, followed by Ford after the bell Thursday.

‘Demand destruction’ watch

Wall Street has been bracing for a “demand destruction” scenario for the last several quarters, which means much of Wall Street’s focus this week will be on the automakers’ 2023 guidance.

Goldman Sachs expects the forecasts to be below consensus, “driven by price and mix as well as lower financial services profits.”

GM is expected to guide toward a roughly 20% decline in adjusted earnings per share for the full year 2023, according to Refinitiv estimates. Ford’s 2023 EPS is expected to fall by nearly 16% compared with 2022.

“We estimate GM and Ford could see a notable decline in profitability this year, as earnings can be weighed down by vehicle pricing declines and losses from growing EV volumes,” Deutsche Bank analyst Emmanuel Rosner wrote in an investor note earlier this month.

Rosner said that guidance risk is already well anticipated, and shouldn’t dent the stocks, however.

Morgan Stanley’s Adam Jonas expects the deteriorating pricing, lower-cost vehicle mix and declining earnings from automakers’ financial arms to “potentially initiate restructuring and cut ‘special projects’ to defend the bottom line,” he said in a note to investors last week.

Amid persist recessionary fears, automakers have yet to announce substantial layoffs or cost cuts similar to those that have hit other sectors, particularly tech, hard. Wall Street will be eager for an update on those fronts this week.

Ford reportedly plans to cut up to 3,200 jobs across Europe and move some product development work to the United States, Germany’s IG Metall union said last week. GM, which sold its European business in 2017, has not announced such actions.

GM and Ford have said they will continue to invest in EVs regardless of macroeconomic factors. Any change in those plans would be notable for investors as well.

—CNBC’s Michael Bloom contributed to this report.

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Here’s the real reason why American Express gives out such big rewards

Here's the real reason why American Express gives out such big rewards

Armed with impressive rewards and a loyal customer base, AmEx is a giant in the credit card industry. The company’s revenue has increased by over 32% since 2017 when adjusted for inflation and the company’s shares have shown resilience and growth in a tumultuous market.

“Discount revenue,” or fees charged to merchants that accept its cards, is the company’s main source of revenue. It brought in more than $30 billion in 2022, contributing to more than 58% of total net revenue of interest expense.

“They charge a premium to their merchants to take their cards,” said Lisa Ellis, a senior analyst at MoffetNathanson. “And merchants are willing to pay that premium because American Express is bringing them the most affluent, biggest spenders.”

Because of its reliance on discount fees, big spenders are AmEx’s most important asset. Recent company reports claim that Amex card members spend, on average, three times as much annually as those who aren’t members.

American Express targets these affluent cardholders through a ‘”spend-centric” model that focuses on generating revenues primarily by driving spending on its cards.

That’s where rewards come in. In just 2022, Amex spent almost $17 billion providing services and rewards to its card members.

“That high spend-centric model is the reason why they can provide such strong rewards that they do and why the customers are willing to pay those higher annual fees,” explained Dominick Gabriele, senior analyst at Oppenheimer & Co. “Because the people that are spending are actually making this up in their spend behavior.”

Watch the video to learn more about how AmEx makes billions in revenue each year.

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