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BlackRock Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Technology services revenue increased by 13% YoY and full-year revenue of $1.6 billion increased by 8%, reflecting the successful onboarding of a number of new clients and expanding relationships with existing clients.
- The company saw record net inflows in 2024, powered by two back-to-back record flows quarters in the second half.
- The company finished 2024 with sequential quarters of at or above target organic growth, which is broad-based across institutional wealth and technology and across regions.
- The company has built a unique asset management and fintech platform that's integrated across public and private markets. With the close of the GIP transaction and the planned acquisition of HPS, BlackRock's private markets and alternatives platform is expected to be $600 billion in client assets, a top five provider and over $3 billion in revenues or about 15% of 2024 revenues.
- The company sees positive network effects to their core business and to their own shareholders by extending their relationship with BlackRock.
- Full-year employee compensation and benefit expense was up 11%, reflecting higher incentive compensation as a result of higher performance fees and operating income.
- Nonoperating results for Q4 included $7 million of net investment losses, primarily due to changes in co-investment valuations.
- EPS reflected a lower tax rate, partially offset by lower nonoperating income and a higher share count in Q4.
- The company expects to see positive leverage to base fee revenue, average fee rates, and organic growth as it grows private markets with clients.
- The company expects to continue to invest to accelerate growth and deliver margin expansion through rules-based budgeting.
- The company expects private markets and technology to make up over 20% of BlackRock's overall revenue.
- The company expects to continue to be disciplined in prioritizing hiring and overall investments, with the ambition of delivering market-leading organic growth and operating margin.
Q&A Highlights from BlackRock Inc Earnings Call Q4 2024
- Analyst asked about the impact of recent rate moves on the marketplace and the company's expectations for more money in motion in 2025.
- Martin Small, Chief Financial Officer, explained that the company has seen continued momentum and a position of strength, with organic base fee growth of 7% in Q4 and 4% for the full year. He highlighted the company's focus on structural growers, such as ETFs, models, Aladdin, fixed income, and target date funds, which drive sustainable organic base fee growth through market cycles. He also mentioned that the company has achieved its organic base fee growth target of 5% on average over the last five years.
- Martin Small, Chief Financial Officer, explained that the company has seen continued momentum and a position of strength, with organic base fee growth of 7% in Q4 and 4% for the full year. He highlighted the company's focus on structural growers, such as ETFs, models, Aladdin, fixed income, and target date funds, which drive sustainable organic base fee growth through market cycles. He also mentioned that the company has achieved its organic base fee growth target of 5% on average over the last five years.
- Analyst asked about steps the company might take to maximize the opportunity presented by the acquisition of HPS.
- Laurence Douglas Fink, Executive Chairman and CEO, explained that the company plans to close the acquisition of HPS in the second quarter and expects to see growth in insurance and wealth channels. He highlighted the company's global reach and strong relationships with clients, which he believes will help expand the company's offerings in private credit and other markets. He also mentioned the company's focus on data analytics and expanding into new and frontier markets.
- Laurence Douglas Fink, Executive Chairman and CEO, explained that the company plans to close the acquisition of HPS in the second quarter and expects to see growth in insurance and wealth channels. He highlighted the company's global reach and strong relationships with clients, which he believes will help expand the company's offerings in private credit and other markets. He also mentioned the company's focus on data analytics and expanding into new and frontier markets.
- Analyst asked about the contribution from HPS to the company's core G&A guide and the impact on margins in 2025.
- The company's approach to shareholder value-creation is to generate consistently market-leading organic growth, drive operating leverage, and industry-leading margins, and execute a consistent capital management strategy. The company has a strong track record of investing in its business for growth and scale, while expanding capability. The company's growth comes from being disciplined in making and managing continued investments in the business, and it keeps the rules-based budgeting principles that have been outlined over the last 12 to 18 months. The company aims to put flexibility in its cost base and variabilize more expenses where possible. The company is looking to generate fixed cost scale, especially through investments in technology. The company has consistently delivered industry-leading margins and improved them. In 2024, the company grew operating income by over 20%, generated close to 3 percentage points of margin improvement versus 2023. The company improved margin by 390 basis points year-on-year in Q4, while operating income was up 30%. The company has a consistent track record of driving scale and productivity, which shows up in margin expansion. On the outlook for 2025, the guidance is mid to high-single digits, excluding HPS. The company believes it can continue to invest to accelerate growth and deliver margin expansion through this rules-based budgeting approach. The company expects that the impact of positive markets on AUM and revenue through this budgeting approach would drive further margin expansion into 2025.
- The company's approach to shareholder value-creation is to generate consistently market-leading organic growth, drive operating leverage, and industry-leading margins, and execute a consistent capital management strategy. The company has a strong track record of investing in its business for growth and scale, while expanding capability. The company's growth comes from being disciplined in making and managing continued investments in the business, and it keeps the rules-based budgeting principles that have been outlined over the last 12 to 18 months. The company aims to put flexibility in its cost base and variabilize more expenses where possible. The company is looking to generate fixed cost scale, especially through investments in technology. The company has consistently delivered industry-leading margins and improved them. In 2024, the company grew operating income by over 20%, generated close to 3 percentage points of margin improvement versus 2023. The company improved margin by 390 basis points year-on-year in Q4, while operating income was up 30%. The company has a consistent track record of driving scale and productivity, which shows up in margin expansion. On the outlook for 2025, the guidance is mid to high-single digits, excluding HPS. The company believes it can continue to invest to accelerate growth and deliver margin expansion through this rules-based budgeting approach. The company expects that the impact of positive markets on AUM and revenue through this budgeting approach would drive further margin expansion into 2025.
- Analyst asked about the outlook for fixed income flows as we look out to the next 12 months, and what the company sees as investors' position in fixed income as we begin 2025.
- The company expects to see continued demand for intermediate and longer-duration fixed income, driven by a more balanced term structure of interest rates and a positive market environment. The company sees that people are under-allocated to fixed income and are looking to increase their weightings in longer-duration fixed income. The company also sees that there is a lot of issuance of countries around the globe at deficits, which will provide opportunities for fixed income investors. The company expects that the large
- The company expects to see continued demand for intermediate and longer-duration fixed income, driven by a more balanced term structure of interest rates and a positive market environment. The company sees that people are under-allocated to fixed income and are looking to increase their weightings in longer-duration fixed income. The company also sees that there is a lot of issuance of countries around the globe at deficits, which will provide opportunities for fixed income investors. The company expects that the large
- Analyst asked about the company's confidence in the retail market for alternatives, specifically regarding plan participants and the potential inclusion of 401(k)s.
- Martin S. Small, the company's Chief Operating Officer, stated that they have strong relationships in wealth and retail markets across the globe and are focused on innovating to provide better access to private markets for wealth managers and retail investors. He highlighted the company's partnership with Partners Group to offer a managed model solution that simplifies wealth access and blends public-private market exposures. He also mentioned the planned acquisition of HPS, which would bring real scale and expertise in the wealth channel, and the company's plans to bring similar evergreen product structures to the US market.
- Martin S. Small, the company's Chief Operating Officer, stated that they have strong relationships in wealth and retail markets across the globe and are focused on innovating to provide better access to private markets for wealth managers and retail investors. He highlighted the company's partnership with Partners Group to offer a managed model solution that simplifies wealth access and blends public-private market exposures. He also mentioned the planned acquisition of HPS, which would bring real scale and expertise in the wealth channel, and the company's plans to bring similar evergreen product structures to the US market.
- Analyst asked about the company's capital allocation strategy, specifically regarding the evolution of the platform, buyback, and dividend growth.
- Martin S. Small, the company's Chief Operating Officer, stated that the company's capital allocation strategy is consistent, with a focus on investing in the business to drive organic growth. He emphasized that the company prefers dividends over share repurchases and that the size of future repurchases would be influenced by a variety of factors, including cash flow generation, organic and inorganic investments, leverage ratio, and debt financing. He noted that BlackRock has become an attractive compounder between dividends and buybacks, and the company wants to maintain this track record for its clients and shareholders.
- Martin S. Small, the company's Chief Operating Officer, stated that the company's capital allocation strategy is consistent, with a focus on investing in the business to drive organic growth. He emphasized that the company prefers dividends over share repurchases and that the size of future repurchases would be influenced by a variety of factors, including cash flow generation, organic and inorganic investments, leverage ratio, and debt financing. He noted that BlackRock has become an attractive compounder between dividends and buybacks, and the company wants to maintain this track record for its clients and shareholders.
