American Express posted second-quarter profit that topped analyst expectations and raised its full-year revenue growth guidance to 10%, yet its shares took a sharp dive following the earnings release.

On Friday before the market opened, American Express reported second-quarter earnings with revenue of $19.64 billion, up 10% year-over-year, and earnings per share of $4.53, surpassing the average analyst estimate of $4.40.

Buoyed by stronger-than-expected operating performance in the first half of the year, the company lifted its full-year revenue growth forecast to 10%.

However, the full-year earnings per share guidance remained unchanged at $17.30 to $17.90. Additionally, the company plans to increase marketing spending, acquire new customers, and continue investing in areas like artificial intelligence.

Amid intensifying competition in the premium credit card market, the core reason for the market's re-evaluation likely stems from American Express reinvesting its incremental revenue rather than converting it into profit expansion. Following the report, American Express shares faced pressure, plunging over 6% during the trading session.

Profit Beats, Revenue Slightly Misses

American Express reported second-quarter net income of $3.11 billion, or $4.53 per share, up from $2.89 billion and $4.08 per share a year earlier, and ahead of the FactSet analyst consensus of $4.40.

On the revenue side, net revenue after interest expense reached $19.637 billion, slightly below the market expectation of $19.703 billion.

Billed business, a measure of total card transaction volume, grew 9% year-over-year in the second quarter to $455.8 billion, indicating resilient consumer spending by cardholders.

Regarding credit quality, the provision for credit losses fell to $1.1 billion in the second quarter, down from $1.4 billion a year earlier, primarily due to the release of some reserves during the quarter. The net write-off rate remained steady at 2.0%, unchanged from the same period last year, suggesting overall credit risk remains manageable.

Rising Expense Pressures, Unabated Investment Spending

Despite solid earnings, the rapid expansion of expenses remained a key focus for the market.

Total consolidated expenses rose 12% year-over-year to $14.5 billion in the second quarter, driven by higher customer incentive costs from increased cardholder spending, the upgrade of the US Platinum Card product, increased usage of cardholder benefits, and higher overall operating costs.

American Express' customer base is primarily composed of premium cardholders, such as those with Platinum and Gold cards.

As competitors like JPMorgan's Sapphire Reserve, Citi's Strata, and Capital One's Venture X intensify their efforts in the high-end market, American Express is compelled to invest heavily to retain existing customers and attract new ones.

The company stated that the unchanged full-year EPS guidance is partly to reserve room for more marketing and technology investments, including ongoing initiatives in artificial intelligence.

New Customer Growth Accelerates, Younger Demographics Lead the Way

The heavy spending appears to be yielding tangible results.

American Express added 3 million new customers in the second quarter, three-quarters of whom applied for fee-based card products, indicating strong appeal in acquiring high-value clients.

CEO Stephen Squeri said following the earnings release that the Platinum card portfolio has become the fastest-growing product line in the company's US consumer business.

He also noted that the largest share of new customers came from Millennials (born 1981-1996) and Generation Z (born 1997-2012), a trend he said is significant for cultivating the company's long-term customer base.

On Friday, American Express also announced plans to acquire TheFork, a European restaurant reservation platform that operates in 11 countries and partners with approximately 50,000 restaurants.

The company stated that the transaction is subject to regulatory approval and completion of relevant labor consultation procedures. The acquisition is seen as a move by American Express to expand dining-related membership benefits and strengthen its position in the premium consumer experience space.