Our patience in BlackRock pays off as its earnings send the stock to record highs
BlackRock’s better-than-expected quarterly results Tuesday helped push the stock to a fresh record high. The market sees what we see: The asset manager’s pursuit of growth beyond lower-cost stock and bond funds is bearing fruit. Revenue in the third quarter rose 25% year over year to $6.51 billion, topping the $6.22 billion estimate, according to LSEG. Adjusted earnings per share (EPS) in the three months ended Sept. 30 totaled $11.55, ahead of the $11.24 consensus, LSEG data showed. Assets under management (AUM) at the end of the quarter reached a record $13.463 trillion, outpacing the Bloomberg consensus of $13.375 trillion. BlackRock shares were up about 2% in midday trading, to roughly $1,179 apiece, defying the downbeat broader market, which was weighed down by rising U.S.-China trade tensions. The stock is on track to eclipse its Sept. 29 record close of $1,175.56. BLK YTD mountain BlackRock’s year-to-date stock performance. Bottom line A year ago this month, we bent our investment discipline to initiate a stake in BlackRock , convinced by another stellar earnings report that it belonged in the portfolio as the iShares ETF operator pursued new growth areas like alternative assets. It didn’t pay off right away: the tariff-driven market swoon earlier this year and a noisy July earnings print were far from ideal. But things have been looking up. The stock has outperformed the S & P 500 since the July 15 close, the day of BlackRock’s roughly 6% slide on earnings. From that day forward, shares have risen more than 10%, versus a roughly 6.5% advance for the S & P 500 and a mere 2% gain for the index’s financial sector. Enter Tuesday’s earnings release, which is much cleaner than the July report and reinforces our confidence in longtime CEO Larry Fink’s vision for the firm. With a series of acquisitions and new endeavors, Fink is positioning BlackRock as a “one-stop shop” asset manager offering investment products spanning not just publicly traded stocks and bonds, but cryptocurrencies, private credit, and infrastructure assets. The company also bolstered its technology business serving investment pros. The past few volatile days notwithstanding, the broader market rally that’s lifted stocks to a series of record highs in recent months is also a boon for BlackRock, which collects more in fees when asset prices are rising. “BlackRock was exactly the dream quarter that we got in [the stock] for,” Jim Cramer said on Tuesday’s Morning Meeting. It was the culmination of all these deals they’ve made over the past year, added Jeff Marks, the Club’s director of portfolio analysis. BlackRock’s $12 billion acquisition of private credit manager HPS Investment Partners closed on July 1. Its $3.2 billion purchase of alternatives data provider Preqin was finalized in March. Meanwhile, BlackRock bought Global Infrastructure Partners (GIP), which owns part of London’s Gatwick Airport and other assets like pipelines and data centers, for $12.5 billion in October 2024. After booking profits on the stock last week , we feel good about letting our remaining position ride. We’re reiterating our hold-equivalent 2 rating, while raising our price target to $1,300 from $1,200. Commentary Among the third-quarter highlights, BlackRock got back to exceeding expectations on net flows following two straight disappointing prints. The firm brought in $205 billion in new client money during the quarter, ahead of the $172 billion expected, driven by iShares ETFs, private markets, and cash management services. “It is gratifying — the breadth of where we grew,” Fink said in an interview on CNBC. “It was not just one product area. It was not just one region. It was the completeness.” Fee growth shone bright: In the third quarter, BlackRock saw organic base fee growth of 10%, its highest growth rate in four years. Over the past four quarters, it was 8%. This metric strips out the impact of market moves during a given period, making it helpful for investors in gauging added revenue from new client money rather than asset price appreciation. One of the reasons why BlackRock’s push into new asset classes is so exciting to shareholders is that they generally command higher management fees than passive ETFs, where competition among players like Vanguard and State Street has brought down expense ratios — a good thing for everyday investors, not so good for companies looking for growth. At its June investor day, BlackRock laid out a long-term target of at least 5% organic base fee growth, in line with its trailing five-year average. The emphasis here is on “at least,” and we’re seeing that in Tuesday’s results. On the conference call, CFO Martin Small said some of the top contributors to the third quarter’s strong growth rate were the iShares Bitcoin and Ethereum ETFs — which launched in January and June 2024, respectively — along with active ETF products that generally command higher fees than their passive counterparts. Year to date, BlackRock has seen about $40 billion of flows into active ETFs, Small said, essentially doubling last year’s amount. “With more growth coming from private markets, systematic strategies and models, we think we should be able to power organic base fee growth,” Small said. “I think more consistently at 6%, 7% or higher. And when markets are supportive like this with risk-on sentiment, we think that can tilt even higher.” That’s music to our ears. BlackRock’s investment advisory performance fees of $516 million were well ahead of expectations and up 33% year over year, as seen in the chart above. Performance fees from its recently acquired HPS were a big driver of the results. With Preqin in the fold, BlackRock’s technology services revenue climbed 28% on an annual basis to $515 million, just a few million shy of the consensus. While the smallest of its private market deals announced in 2024, Preqin is a big part of BlackRock’s private markets strategy because its data brings transparency and can underpin the creation of private-asset funds for retail investors to own in their retirement accounts . Despite the general enthusiasm around its private market ambitions, investors are keeping a close eye on expense growth given which determines how much of those higher fees trickle down to the bottom line. Not only are there integration expenses from acquisitions, but the fund managers and partners at these firms are well-compensated. Total expenses rose 26% year over year. While BlackRock’s adjusted operating margin of 44.6% exceeded the FactSet consensus, we did see a few reaction notes from analysts Tuesday morning that said the figure came in below their models. The stock move suggests this is not a major cause for concern, but it remains something to watch in future quarters. One more watch item: In the July earnings report, the market took issue with a big outflow from an institutional client in BlackRock’s index business. While there was another single client index transfer in this quarter, Small said the revenue impact was “immaterial,” and it was also offset by the addition of a $30 billion Dutch pension fund. (Jim Cramer’s Charitable Trust is long BLK. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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