BlackRock’s Revenue Growth Will Slow Down Considerably Over Coming Years

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Trefis
BLK: BlackRock logo
BLK
BlackRock

BlackRock (NYSE: BLK) is the world’s largest asset management firm, with Assets under Management (AUM) of $6.8 trillion at the end of Q2 2019. It has a global footprint with employees in over 24 countries, retail and institutional investors in over 100 countries, and investments in capital markets across the globe. Its offerings include Equity Investments, Fixed Income Investments, Multi-Asset Class Investments, Currencies & Other Alternative Investments, Advisory Services and Cash Management services to retail & institutional investors. BlackRock faces stiff challenges and competition from offerings by its competitors such as State Street, Vanguard, BNY Mellon and JPMorgan.

Trefis details the key components of BlackRock’s Revenues in an interactive dashboard, along with our forecast for the next three years. While revenues have grown by 27% over the last three years (from $11.2 billion in 2016 to $14.2 billion in 2018), asset management industry headwinds are expected to reduce the growth rate considerably over coming years. BlackRock revenues are expected to grow at an average annual rate of just 3% to cross $15.3 billion by 2021, mainly driven by Fixed Income Investments and Alternative Investments divisions. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for BNY Mellon’s Revenues. Additionally, you can see more Trefis data for financial companies here.

[A] Equity Investments revenues are expected to decrease by 2% to $5.9 billion in 2019.

  • This division represents fees generated by BlackRock through its equity fund offerings to retail and institutional investors
  • The segment revenues have grown by 19% over the last three years, from $5 billion in 2016 to $6 billion in 2018, driven by strong growth in Assets under Management (AuM) – especially its extremely popular iShares line of ETFs.
  • Although we expect the growth in AuM to continue, negative economic scenario and government policy uncertainty would more than offset its impact and reduce the segment revenues by 2% y-o-y in 2019.
  • Thereafter, it is expected to grow at an average annual rate of 2% and cross $6.1 billion by 2021.
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[B] Fixed Income Investments would grow at a slower pace over coming years.

  • It represents fees generated by BlackRock through its debt fund offerings to retail and institutional investors
  • Although the segment revenues have grown by 15% from $2.7 billion in 2016 to $3.1 billion in 2018, negative bond market conditions are expected to reduce segment growth rate over subsequent years.
  • Revenues are expected to grow at an average annual rate of 5% and cross $3.5 billion by 2021.

[C] Multi-Asset Class Investments have grown at an average annual rate of 2% over 2016-2018, which is expected to increase to 3% over the next three years.

  • This segment represents fees from funds that employ a combination of equity, fixed income and alternative investments.
  • The segment revenues are expected to grow by 10% over the next three years – from $1.2 billion in 2018 to $1.3 billion by 2021.
  • This would be driven by growth in segment AuM, which is expected to increase at an average annual rate of 5.8% and cross $565 billion by 2021.

[D] Alternative Investment revenues are expected to remain unchanged in 2019.

  • Alternate Investments represents fees generated by BlackRock through its alternative investment fund offerings (including currencies, commodities and real estate) to retail and institutional investors
  • The segment revenues recorded a growth of 26% in 2017, driven by a significant jump in performance fees. However, it remained at the same level in 2018 due to sluggish growth in segment AuM.
  • We expect the revenues to remain unchanged at $1.1 billion in 2019 due to lower investment advisory fees coupled with a significant drop in performance fees.
  • Thereafter, it is expected to grow at an average annual rate of 7% and cross $1.3 billion by 2021.

[E] Cash Management revenues have grown by 33% from $458 million in 2016 to $607 million in 2018.

  • This segment includes fees generated by BlackRock through its money market fund offerings to retail and institutional investors
  • Although the segment has seen high growth over the last three years, we expect the growth rate to slow down due to lower-than-expected increase in segment AuM.
  • This would translate into an increase of 11% over the next three years – from $607 million in 2018 to $676 million by 2021.

[F] Advisory Services revenues are expected to grow 32% from $0.8 billion in 2018 to $1 billion by 2021.

  • This division includes fees from risk management, investment analytics, investment system and advisory services
  • Although this segment doesn’t have a significant impact on total revenues, it is one of the fastest-growing segments of the company and is expected to grow at an average annual rate of 10% over the next three years.

[G] Distribution Fee & Other revenues will nudge slightly higher

  • It includes fees from mutual funds for bringing in investments, sales commission, fund accounting services and transition management fees
  • We expect the segment revenues to reduce from $1.4 billion in 2018 to $1.3 billion in 2019, due to challenging market conditions.
  • Further, the segment revenues are expected to grow at an average annual rate of 2% and cross $1.4 billion by 2021.

Trefis estimates BlackRock’s stock (shows cash and valuation analysis) to have a fair value of $500, which is 15% higher than the current market price. Our price estimate incorporates changes to our forecast based on BlackRock’s earnings release for the second quarter in mid-July.

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