VALUATION HIGHLIGHTS

1. Equity Investments constitute 39% of the Trefis price estimate for BlackRock's stock.
2. Fixed Income Investments constitute 20% of the Trefis price estimate for BlackRock's stock.
3. Alternative Investments constitute 12% of the Trefis price estimate for BlackRock's stock.

WHAT HAS CHANGED?

Latest Earning

In Q4 2023, BlackRock reported Total Revenues of $4.63 billion, up 7% y-o-y. It was primarily driven by a 11% y-o-y growth in average AUM.

BlackRock stock has gained more than 100% since the March 23 lows in 2020, mainly driven by better-than-expected results in each of the four quarters of 2020 due to recovery in global financial markets, which improved the asset valuations and took Assets under Management (AuM) to record highs. Its full-year 2020 revenues have increased by 11% y-o-y, and the company has reported a whopping $391 billion in net inflows for the year. Further, the same trend was evident in FY2021. However, the total AuM decreased 9% in 2022 to $8.65 trillion due to lower market valuations, before recovering by 3% y-o-y to $9.22 trillion in FY2023. The company posted total revenues of $17.86 billion in FY2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are some key drivers of BlackRock's value that present opportunities for upside or downside to the current Trefis price estimate:

• BlackRock's Assets Under Management in Equity iShares: This represents the total assets invested in BlackRock's equity-based exchange-traded funds (ETFs) under its iShares brand. ETFs are publicly traded funds that generally track an index such as the S&P 500. BlackRock's market-leading position and broad offering have allowed its equity ETF assets to touch $2.28 trillion in 2023. The company is also planning to expand its offering of ETFs tracking proprietary indices, which will differentiate it in an increasingly saturated market. We forecast equity ETFs increasing to about $3.7 trillion by the end of our forecast period. However, should the market become more competitive, and low-cost competitors take share, the growth rate of these assets could fall to as little as 2% annually from the 5.3% figure we currently forecast.
• BlackRock's EBT Margin: This represents BlackRock's pre-tax company-wide operating margin. The figure grew steadily to 40% in 2016 before shrinking to 38% in 2018. It again increased in the subsequent years and was around 42% in 2021, before reducing to 40% in 2023. Going forward, we expect the figure to increase gradually over the Trefis forecast period. However, suppose increased pressure from competitors and higher costs related to attracting more retail investors weigh on margins. In that case, the figure could fall to 32% by the end of the Trefis forecast period.

BUSINESS SUMMARY

BlackRock is the world's largest asset management firm, with Assets under Management (AUM) of almost $8.7 trillion in 2022. BlackRock offers equity, fixed income, multi-asset class, alternative investment and cash management products, and BlackRock Solutions risk management and advisory services. BlackRock has a global footprint, with employees in over 24 countries, retail and institutional investors in over 100 countries, and investments in global capital markets. BlackRock ranked fourth in terms of global AUM in 2008, before its 2009 acquisition of Barclays Global Investors made it the world's largest asset manager. BlackRock's services are divided into the following categories: Equity Investments, Fixed Income Investments, Multi-Asset Class Investments, Currencies & Other Alternative Investments, Advisory Services, Cash Management, and Distribution Fees & Other.

SOURCES OF VALUE

BlackRock's Equity Investments division is its most valuable, according to Trefis estimates, followed by Multi-Asset Class Investments. These divisions are valuable for the following reasons:

Scale and Scope of Operations

BlackRock is the world's largest asset manager, with a global presence and a very well-established brand. The company's scale allows it to spread fixed costs over a larger asset pool thus enabling it to charge competitive fees. The company's diversified product offering and strong track record allow it to retain customer funds while consistently generating investor fund inflows. This diverse product offering also allows it to tailor investment products to its clients' needs, which contributes significantly to the value of its Multi-Asset Class Investments division.

Higher fees for equity products than fixed-income

BlackRock is able to charge higher fees for its equity products than its fixed-income products as equity investments are generally riskier than fixed-income. For example, equity investments generally require more research than a fund investing in government bonds. Additionally, there are significant trading costs compared to many fixed-income funds. However, the potential returns are higher as well. BlackRock charges a management fee of roughly 0.54% for active equity investments compared to about 0.2% for active fixed income.

KEY TRENDS

Government policy uncertainty and deteriorating bond yield can hurt fund inflows

Although equity market valuations have improved in recent months, government policy uncertainty and poor earnings outlook would constrain its growth. Further, deteriorating bond yields could hamper the growth of the Fixed income segment. This could hurt the market value of BlackRock's investments, resulting in a decrease in assets under management and, consequently, lower fees. Additionally, as market volatility increases, we expect that investors will be more risk-averse, reducing investment.

Increasing investments from emerging markets

Emerging markets such as India and China, with high GDP growth rates and growing wealth, present a substantial opportunity for asset managers. As BlackRock is a market leader and has a global footprint, it should benefit from demand in these markets.

Changes in fee structure

Since many active managers have been unable to outperform the benchmark index consistently, and particularly since the financial crisis, many investors have demanded performance-based fees, as opposed to a fixed management fee which means the manager gets paid the same fixed percentage of assets regardless of returns. Performance fees better align the interests of managers and investors, and as such, we expect a greater proportion of fees to be performance-based in the future. This could impact average fees as managers would be compensated less on a total basis in down years.