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Friday, January 18, 2013

Three Things to Know from BlackRock's Earnings

Reported by Tommy Fernandez

Unless you've been hiding under a rock, you'd know that BlackRock [profile] had another stellar fourth quarter and year.

For instance, companywide, BlackRock reported a record full year earnings per share figure of $13.68 for 2012, up 15 percent from the previous year, as well as a record quarterly EPS of $3.96, up 29 percent from the same period last year. These figures were supported by a 14-percent year-over-year increase in quarterly revenue, to $2.539 billion. Operating income rose 24 percent from a year ago to $1 billion, while the operating margin rose 330 basis points from a year ago to 39.6 percent in the fourth quarter.

More details on BlackRock's successes this year can be found at the company's investor relations page.

Perusing that site, as well as the Seeking Alpha transcripts of the analyst call on these earnings, you'll get at least three powerful takeaway points of chief executive Larry Fink's plans for crushing the competition this year via ETFs and other passive products.

It would do well to remember that the index product goliath broke $1 trillion in AUM for ETFs during the fourth quarter.

These three points are:

POINT #1: BlackRock Wants to Be the One-Stop Shop for Investors Worried About Risk
POINT #2: BlackRock Will Beat the War Drums Even Harder This Year on Passive Products
POINT #3: BlackRock Is Looking to Be A Switch-Hitter When It Comes to Risk


Here are the points in greater detail:

POINT #1: BlackRock Wants to Be the One-Stop Shop for Investors Worried About Risk
BlackRock's approach towards investor demand can be summed up by the following sets of comments Fink made at different points during the earnings call:
At the heart of our diversification strategy has been a strategic emphasis, a combining act of passive capacity and capabilities to offer clients a holistic investment solution.

Our diversification gives us a powerful competitive edge as we move into 2013. In fact, BlackRock, more than any other organization is equipped to meet these client needs in an environment of unprecedented complexity and uncertainty that will differentiate us and help us ensure that we continue to track clients and nurture increasingly deep, hopefully productive, relationships with them.

We have been living in a strange investment environment for some time. Economic and political uncertainty persist. Unfortunately, it will -- they will continue to persist. Lower rebate -- rates remain. A tax on savers remains a problem in terms of the underfunding of pension funds -- plans that are getting worse. And demographic because they're changing with more people entering retirement and living much longer in retirement and are not prepared to meet the needs of elongated longevity of life. So we are seeing with these big macro challenges, we're seeing several megatrends in investment behavior. The secular shift to passive investing in ETFs, a focus on income and retirement, clients are barbelling risk using passive and high alpha product strategies including alternatives. Importantly, these themes represent strategic growth areas for BlackRock with ETFs, income and retirement products, index and alternative strategies, which have accounted for over 50% of our flows in the fourth quarter and 75% of our flows of the year.

Over the last several years, we've invested heavily in our businesses and businesses and teams to position ourself for these megatrends.
A few examples of these efforts include the launch in October of the Core Series of products, BlackRock's expansion of its Solution line and also a number of other new entries in alternatives and overseas investments.

POINT #2: BlackRock Will Beat the War Drums Even Harder This Year on Passive Products


During the conference call, Fink noted that General and Administrative expenses, which included marketing, branding and the relaunch of the iShares brand, were up $30 million for the year. BlackRock's commitment to such heavy marketing will remain as strong this year, as evidenced by the following comments at different points in the call:
As we look forward, we will continue to invest in our brands. I would expect 2013 marketing expense to be roughly in line with 2012 for the full year, though we do plan to begin the year with very strong messaging. Given the positive client reaction to the campaign, we remain highly confident that this is a critical, long-term investment in the business.

In addition, in 2012, we began marketing the BlackRock and iShares brand far more aggressively than ever before. Our marketing communication efforts are designed to raise awareness about the investment challenges facing our clients and the breadth of solutions that BlackRock and iShares offer to help navigate these very challenging environments. These efforts have been extraordinarily positive, even more than I and all of us have expected. As measured by increased awareness of our brands, more traffic to BlackRock directly and through intermediaries, and most importantly, in growth in our market share and assets, which is particularly evident in our ETF flows.


POINT #3: BlackRock Is Looking to Be A Switch-Hitter When It Comes to Risk
As BlackRock continues to aggressively diversify its product lineup, including new products aimed for income and alts as well as a variety of demands from the retirement and defined contribution market, the goliath plans to be agnostic on the subjects of risk, alpha and beta.

On that subject, Fink had this to say:
To me, it is particularly gratifying that our people have shown quite dramatically that active and passive not only can live together, but indeed flourish to the benefit of our entire organization, but more importantly, to our clients. Our clients are coming to us, not just on one strategy, but a holistic approach. And the fact that we can provide them a beta, a alpha with risk management overlay, no other organization in the world can do that.

In short, as momentum relentlessly builds for index products, BlackRock plans to envision every investor need and bolster a world-wide operation that makes the delivery of these products as soon as possible. It also plans to relentlessly proselytize this message globally.

For more info, check out the BlackRockinvestor relations page, and the Seeking Alpha transcripts

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