BLACKROCK INC (BLK) Earnings Summary for Q3 FY2024

Key Metrics

• Revenue: $5.2 billion (15% yoy)
  • Base Fee and Securities Lending Revenue: $4 billion (9% yoy, 4% qoq)
  • Performance Fees: $388 million (significantly increased yoy)
  • Technology Services Revenue: Down 1% yoy, up 2% qoq
• Operating Expenses:
  • Total Operating Expenses: Up 8% yoy
  • Compensation and Benefits: Up 10% yoy
• Ending AUM: $11.5 trillion
• Net Inflows:
  • Total Net Inflows: $221 billion

Forward guidance

1. 2024 Revenue Guidance: Expect approximately $250 million in management fees from the Global Infrastructure Partners (GIP) acquisition in Q4 2024.
2. 2025 Revenue Projection: Anticipate $1 billion in fees from GIP with an expected FRE margin of over 50%.
3. Tax Rate Estimate: Projected effective tax rate for the remainder of 2024 is 25%.
4. Organic Base Fee Growth Target: Aim to achieve or exceed 5% organic base fee growth over the long term.
5. Operating Margin Expansion: Expect continued margin expansion driven by technology investments and variabilization of expenses.
6. Headcount Outlook: Anticipate headcount to remain broadly flat in 2024.
7. Core G&A Expense Growth: Project a low to mid-single digit percentage increase in core G&A expenses for 2024, potentially at the high end of this range due to GIP integration.

Key takeaways

• Positives:
  • BlackRock achieved record net inflows of $221 billion in Q3, indicating strong client demand and confidence, with CEO Laurence Fink stating, "We see significant opportunity to deepen relationships and to grow our share."
  • The acquisition of Global Infrastructure Partners (GIP) is expected to triple infrastructure AUM and double private markets management fees, with CFO Martin Small noting it will add approximately $250 million in management fees in Q4.
  • Strong performance in fixed income ETFs, with assets surpassing $1 trillion, suggests a favorable environment for sustained inflows, supported by central bank normalization, as stated by Small: "Fixed income remains a compelling organic growth opportunity for BlackRock."
  • Aladdin technology services reported 15% ACV growth, reflecting sustained demand and successful client implementations, highlighting operational strength.
  • The company is strategically shifting towards higher fee products in private markets, which could enhance overall fee rates, as indicated by Small's comment on expected positive leverage from growing private markets.
• Negatives:
  • Operating expenses rose 8% year-over-year, primarily due to higher compensation and G&A, which could pressure margins if not managed effectively.
  • The effective tax rate increased to 26%, impacting earnings per share growth, which was only 5% in Q3, raising concerns about future profitability.
  • The technology services revenue declined 1% year-over-year, indicating potential challenges in maintaining growth in this segment, despite overall strong performance.
  • Competitive pressures in the asset management industry remain, with ongoing shifts in client preferences and market dynamics that could affect future inflows and fee structures.

Peer Summary

• Fee Revenue Growth: State Street Corp anticipates fee revenue growth at or slightly above 4-5% for FY2024, indicating a competitive environment for fee structures in asset management.
• Net Interest Income (NII): JPMorgan Chase expects NII to be under pressure, with a slowdown in customer yield-seeking activity, which may impact overall profitability across the sector.
• Net Outflows: T. Rowe Price reported net outflows of $12.2 billion in Q3, with expectations for further increases, highlighting challenges in client retention and competitive pressures.
• Expense Growth: Goldman Sachs and Morgan Stanley both project increased expenses, with Goldman Sachs noting a focus on improving margins despite rising costs, reflecting sector-wide cost management challenges.
• Market Sentiment: Concerns about a potential U.S. recession and geopolitical tensions were noted by State Street, indicating a cautious outlook that could affect client investment behavior across the industry.
• Competitive Pressures: T. Rowe Price and Goldman Sachs acknowledged ongoing competitive pressures, with T. Rowe Price highlighting shifts towards lower-fee vehicles, which could impact revenue streams.