BlackRock stock dips as inflow drop overshadows surprise surge in profits
A SHARP drop in net inflows took shares of BlackRock down 2 per cent on Friday (Oct 13) despite the company handily beating third-quarter profit estimates, as the world’s largest asset manager signalled that it was increasing its hunt for acquisition targets.
A rise in investment advisory fees and BlackRock’s assets under management (AUM) helped the company’s adjusted profit of US$10.91 per share breeze past analysts’ estimates of US$8.26, according to LSEG data. However, its net inflows for the quarter fell to US$2.6 billion from US$16.9 billion last year, reflecting US$49 billion of net outflows from lower-fee institutional index equity strategies, including US$19 billion from a single international client.
BlackRock ended the third quarter with US$9.1 trillion in assets under management (AUM), up from US$8 trillion a year earlier, but lower than US$9.4 trillion in the second quarter this year.
“For the first time in nearly two decades, clients are earning a real return in cash and can wait for more policy and market certainty before re-risking. This dynamic weighed on the industry and BlackRock’s third-quarter flows,” CEO Larry Fink said.
BlackRock, whose spending on mergers and acquisitions has been below its norms over the last five years, is engaged in more deal talks than it has been in “many, many years”, Fink told analysts on the company’s earnings call.
A significant acquisition would follow the company’s track record of purchasing new assets to increase growth during periods of market weakness, said Kyle Sanders, an analyst at Edward Jones.
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“They seem to be inching for a big deal, and Larry is probably hunting for elephants right now,” he said.
Shares of BlackRock are down nearly 12 per cent for the year to date, well below the 13.2 per cent gain in the benchmark S&P 500 over the same time.
Hopes that the Federal Reserve could soon be done with its monetary tightening have helped calm investor worries about a potential recession, yet signals from the central bank that it will keep its benchmark interest rate higher for longer have weighed on bond prices, pushing yields near 16-year highs.
Investors are likely waiting for yields to peak before making any significant changes in their asset allocation, BlackRock said.
“The long-term trend of clients consolidating more of their portfolios with BlackRock is only accelerating, and underlying business momentum remains strong,” Fink said.
Revenue at BlackRock rose nearly 5 per cent to US$4.5 billion from a year earlier, driven by organic growth and the impact of market movements over the past 12 months on average AUM and higher technology services revenue, it said.
The New York-based company’s chief source of revenue is the management fees it earns as a percentage of the total AUM.
BlackRock has also been trying to enter the crypto space. Its spot bitcoin ETF application is under review by the Securities and Exchange Commission and an approval could boost the company’s appeal among retail investors. REUTERS
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