BlackRock Earnings: Better Bottom-Line Results Despite Weaker-Than-Expected Flows and Market Gains

While there was little in wide-moat-rated BlackRock’s BLK second-quarter earnings that would alter our long-term view of the firm, we do expect to lower our $810 per share fair value estimate slightly to account for weaker flows and market gains than we were forecasting, which affects our near-term expectations. BlackRock closed out June 2023 with $9.425 trillion in managed assets, up 3.7% sequentially and 11.0% on a year-over-year basis but below our forecast for $9.500 trillion in assets under management. Net long-term inflows of $57 billion during the quarter were below our expectations for $100 billion in positive flows and reflective of annualized organic AUM growth of 2.7% (just under the lower end of our long-term annual organic AUM growth target of 3%-5%). That said, the company did produce annualized organic AUM growth of 5.2% during the first quarter, leaving first-half organic AUM growth near the middle of our long-term forecasted range.

While average AUM was up 1.8% year over year during the second quarter, BlackRock recorded a 2.1% decline in base fee revenue growth as product mix shift and changing fee rates led to a 3.8% decline in the firm’s realization rate. Total revenue was down 1.4% year over year, as higher performance fees and technology services revenue offset weaker distribution fee income and asset-based fees. First-half revenue growth of negative 5.6% was worse than our full-year forecast calling for flat to positive low-single-digit top-line growth during 2023, but the firm does face easier comparables in the back half of the year. As for profitability, BlackRock posted a 210-basis-point year-over-year decline in first-half GAAP operating margins to 35.1% because of higher compensation and administration costs. On an adjusted basis, first-half operating margins were down 240 basis points to 41.5%. Adjusted earnings per share of $9.28 for the June quarter was better than our forecast for $8.57 and the FactSet consensus estimate of $8.52.