3Q23 Earnings Beat, AUM Flows Fall Short
- Adjusted earnings increased by 13% year-over-year, surpassing expectations, primarily due to a lower-than-expected effective tax rate.
- Recorded the first quarterly net long-term outflows since the beginning of the pandemic amidst a volatile market, primarily attributed to redemptions from lower-fee institutional index funds.
- Management remains positive to capture money in motion and potential M&A opportunities
3Q23 earnings beat, yet AUM flows were soft. Revenue was in-line with expectations, up 5% y-o-y mainly driven by higher average AUM (+11% y-o-y) and tech service revenue (+20% y-o-y). Adjusted profit was up 13% y-o-y, reflecting a lower effective tax rate, partially offset by lower non-operating income. Long-term net flows were below expectation with US$13bn outflows, versus consensus expectation of US$50bn inflows. Management attributed that to the US$49bn of outflow in institutional index equity strategies, which are of much lower fee at low single-digit basis points. Over past twelve months period, AUM was up US$1.1tn with US$0.3tn of inflows.
Positive outlook on both organic and inorganic growth. Weak long-term net flows during the quarter are not overly concerning, mainly involving low-fee AUM that can move quickly from time to time. With treasury yields inching higher recently, a substantial reallocation from cash products to fixed income is approaching. BlackRock is well positioned to capitalize on this shift due to its strong fixed income franchise. Furthermore, management expressed openness to M&A, focusing on technology and private markets, among other areas. Its robust track record as an acquirer, ample debt capacity, and attractive market valuation make growing through M&A a viable option. Maintain BUY with TP of US$780.