BlackRock Profit Beats Estimates as Assets Reach $15.5 Trillion on $205 Billion of Inflows

BlackRock reported third-quarter revenue of $7.75 billion, up 19% from a year earlier, on Wednesday, with diluted earnings of $10.57 a share on a GAAP basis and $15.93 a share as adjusted, as clients poured $205 billion of net new money into the world's largest asset manager.

The adjusted result was the cleaner beat. As-adjusted net income was $2.62 billion, up 37% from a year earlier and ahead of the $2.38 billion Wall Street expected, Barron's reported, while as-adjusted diluted earnings of $15.93 a share compared with the roughly $14.24 to $14.33 a share that preview estimates had clustered around. Revenue also came in ahead of the roughly $7.45 billion preview consensus. Shares rose about 3% in premarket trading after the release, with Reuters putting the gain at 3.1% and Barron's at 3.2%, to $1,100.

Two profit lines, one acquisition charge between them

The gap between the two earnings lines is mostly one item. GAAP results absorbed a $564 million noncash increase in the fair value of contingent consideration tied to prior acquisitions, up from $93 million a year earlier; BlackRock excludes that charge from its as-adjusted results. On a GAAP basis, operating income was $2.33 billion, up 19%, for an operating margin of 30.0%, unchanged from a year earlier, and net income attributable to BlackRock was $1.66 billion, up 25%. As adjusted, operating income was $3.33 billion, up 27%, the operating margin widened to 47.8% from 44.6%, and diluted earnings rose 38%. The adjusted figures also reflect higher nonoperating income, including a $353 million net gain on investments in the quarter. Diluted shares, including the Subco Units, were 164.5 million.

Flows did the compounding

Clients entrusted BlackRock with $205 billion of net inflows in the quarter, taking the twelve-month total to $869 billion. Long-term net flows were $175 billion, and organic base fee growth was 11% annualized in the quarter and 10% over the last twelve months. iShares exchange-traded funds drew $135 billion of net inflows, and active strategies took in $66 billion, led by fixed income and systematic strategies, the company said. By product, fixed income flows were $78 billion and equity flows were $52 billion, while cash management added about $31 billion and ended the quarter with $1.10 trillion of assets. The one soft spot was institutional index, which saw $27 billion of net outflows; retail clients added $23 billion.

Performance fees and Aladdin carried the revenue mix

Investment advisory and administration fees were $5.78 billion and securities lending revenue was $253 million, for a base-fee and securities-lending total of $6.04 billion on average assets of $15.46 trillion, up 19% from a year earlier. Performance fees jumped to $630 million, from $516 million a year earlier and $305 million in the second quarter. Technology services and subscription revenue rose 14% to $588 million, and Chief Executive Laurence Fink pointed to 12% growth in technology annual contract value. Distribution fees were $414 million and advisory and other revenue was $84 million.

Sequentially, the quarter also built on the second quarter rather than merely beating a soft year-ago comparison: revenue rose from $7.08 billion in the second quarter, as-adjusted diluted earnings rose from $13.91 a share, and assets under management rose from $15.34 trillion at June 30. Alternatives added $24 billion of net flows in the quarter, including $15 billion into private markets, on top of the $68 billion the firm says it raised in that business over the last twelve months.

Private markets and the shareholder return

BlackRock repurchased $550 million of its shares in the quarter and paid a dividend of $5.73 a share, unchanged from the second quarter and up from $5.21 a year earlier. In private markets, the firm said it raised $68 billion over the last twelve months, and its AI Infrastructure Partnership made its first deployment in the quarter, a financing mandate of the kind Fink has been positioning the firm to win as demand for capital grows across the global economy.

What to watch next

Fink, President Robert Kapito and Chief Financial Officer Martin Small were scheduled to discuss the results on a 7:30 a.m. ET call on Wednesday; the call had not taken place when the release was published, so guidance color is still to come. Fink framed the setup in the release itself, saying the firm is entering its seasonally strongest fourth quarter with accelerating momentum. That is management's characterization, and it is the claim the next three months will be judged against. What to watch is whether performance fees hold anywhere near the third quarter's $630 million, whether iShares and active fixed income can repeat a $205 billion flow quarter, and whether the contingent-consideration charge stays a one-quarter distortion between the GAAP and adjusted lines.