Blackstone Earnings: Weaker Results in the Face of Continued Equity and Credit Market Headwinds
There was little in narrow-moat-rated Blackstone’s BX third-quarter results that would alter our long-term view of the firm. We are leaving our $110 per share fair value estimate in place and view the shares as being slightly undervalued right now. Blackstone closed out the third quarter with $734.5 billion in fee-earning assets under management, or AUM, up 0.5% sequentially and 4.1% year over year. Total AUM was $1.007 trillion, up 0.6% sequentially and 5.9% on a year-over-year basis. Adjusted net inflows of $2.4 billion during the third quarter were well off the positive $26.8 billion quarterly run rate we’ve seen for flows the past two years.
Total revenue (which includes the effects of unrealized activity) increased 104.2% year over year on higher levels of unrealized performance allocations (despite lower realized performance and principal investment gains). Year-to-date top-line growth (including the effects of unrealized activity) was negative 1.1% as the company lapped strong results from the first half of 2022. Third-quarter (full-year) management fee income was up 6.0% (8.9%) year over year, which was slightly better than our expectations for the full year. Fee-related earnings (which measure profits from revenue received on a recurring basis and not subject to future realization events) of $1.1 billion during the September quarter were down 4.7% year over year (and down 1.2% when looked at on a year-to-date basis in comparison with 2022 results).
Distributable earnings (which remove the effects of unrealized activity) were $1.2 billion, or $0.94 per share, down from $1.4 billion, or $1.06 per share, in the third quarter of 2022, as results were adversely impacted by lower segment revenue and a rise in core operating expenses. This was below the FactSet consensus estimate of $1.01, as well as our own estimate of $1.02 per share, which explains why the company’s shares are trading down the morning of Oct. 19.
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