Envestnet Earnings: Mixed Period and Disappointing Revenue Outlook

Narrow-moat-rated Envestnet reported a mixed third quarter. Revenue of $317 million fell 1% shy of the FactSet consensus but expense control on adjusted expenses resulted in adjusted EBITDA and adjusted EPS coming in at 2% and 4% higher than the consensus, respectively. However, the firm’s fourth-quarter revenue outlook was disappointing. Relative to our expectations, asset levels were in line, but the firm’s asset-based fee rate implies about 9.6 basis points in the fourth quarter, down from 10.0 basis points in the third quarter. In addition, Envestnet is seeing some softness in its subscription businesses. As we tweak our model, we expect to decrease our fair value estimate on Envestnet by 5%-15%.