VALUATION HIGHLIGHTS

1. Institutional Clients (FICC Trading, Equity Trading) constitute 54% of the Trefis price estimate for Goldman Sachs's stock.
2. Asset Management constitutes 24% of the Trefis price estimate for Goldman Sachs's stock.
3. Investment Banking (M&A Advisory, Equity Underwriting & Debt Origination) constitutes 21% of the Trefis price estimate for Goldman Sachs's stock.

WHAT HAS CHANGED?

Latest Earnings

In Q4 2023, Goldman reported total revenues of $11.32 billion, which was 7% higher than the figure a year ago. The increase was because of higher net revenues in Asset & Wealth Management and Platform Solutions, partially offset by negative growth in Global Banking & Markets.

Impact of coronavirus outbreak

Goldman Sachs's full-year 2020 revenues increased by 22% y-o-y to $44.6 billion. It was mainly due to its strength in sales & trading and investment banking businesses. While businesses and individuals suffered in 2020 due to the impact of the Covid-19 crisis and the economic slowdown, investment banking and sales & trading have seen significant growth. Investment banking benefitted from higher underwriting deal volume, and sales & trading derived its growth from higher market trading volumes.

The company reported $47.36 billion in FY2022 revenues. Further, the figure was $46.25 billion in FY2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Goldman Sachs' value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:

Bonds, Currencies & Commodities

• Trading Assets for Bonds, Currencies & Commodities : Goldman's FICC operations have historically been its biggest source of revenue. The global bank grew its debt-trading capital from $202 billion in 2017 to $242 billion in 2022. We currently forecast a 0.5% growth in FICC trading assets going forward. However, if Goldman's optimism about the FICC industry proves right, then assets could grow by 2% annually to reach $280 billion by the end of our forecast period.
• Yield on Trading Assets for Bonds, Currencies & Commodities: Goldman Sachs' FICC trading yields increased from 3.06% in 2017 to 6.05% in 2022. We expect yield figures to remain around 4-5% for the Trefis forecast period.

For additional details, select a driver above or a division from the interactive Trefis split for Goldman Sachs at the top of the company page.

BUSINESS SUMMARY

Goldman Sachs is a leading global financial services firm with offices in over 30 countries. The company offers investment banking, securities, and investment management services to corporate, institutional, government, and high-net-worth individual clients.

SOURCES OF VALUE

Yields For Equity Trading Business Well Above FICC Trading Yields

The average yield for Goldman's equity trading business over the period 2017-22 was 10% - compared to a figure of 3.8% for the FICC business over the same period. As a result, equity trading revenues were 75% of the FICC revenues in 2022, despite the equity trading desk being one-fourth of the size of the FICC trading unit in terms of trading portfolio size.

Growing Asset Management Business

Goldman's assets under management (AUM) have seen significant growth over the last decade as the banking giant looks for ways to improve profitability even as its cornerstone trading business remains prone to high volatility. Goldman will likely have to focus more on its asset management business as new regulations begin to restrict proprietary trading and risk-taking, which is why we see the division as a significant value driver for the company. The bank is also pushing its online loans-and-deposits services to diversify its presence in the U.S. financial services space.

KEY TRENDS

Increasing Demand for Investment Banking Services in Emerging Markets

With the GDP of many emerging markets, such as China and Brazil, growing rapidly, there is an increasing demand for capital from companies in these markets to support expansion. Additionally, with the integration of these markets into the global economy, there is a shift in these countries from family-run businesses to global corporations. Accordingly, there is an increasing number of companies going public or raising debt capital, driving demand for equity underwriting and debt origination services. Consolidation across different sectors has also been driving demand for M&A advisory services.

Dominant position in investment banking

Goldman Sachs is a leader in the global investment banking space, with the bank ranking among the top three in the global M&A industry for nearly every single quarter over the last decade.

Volcker Rule Has Affected Trading Revenues

The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Goldman's proprietary trading desks accounted for a sizable percentage of earnings before the downturn, and the Volcker Rule stopped these revenues. Although the Trump administration can potentially dilute the Volcker rule restrictions, the timing and effectiveness of proposed changes remain to be seen.

Economic Recovery Should Stimulate the Asset Management Industry

Investors' desire to regain losses during the recession could stimulate investments in multi-asset, alternative, and equity products. At the same time, signs of a broad-based recovery in the real estate market would improve prospects for alternative investments.

Long-term trends, including the ongoing shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies, will also positively impact assets under management.