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Blackstone Earnings: Weaker Results in the Face of Continued Equity and Credit Market Headwinds

Financial Services Sector artwork

There was little in narrow-moat-rated Blackstone’s BX third-quarter results that would alter our long-term view of the firm. We are leaving our $110 per share fair value estimate in place and view the shares as being slightly undervalued right now. Blackstone closed out the third quarter with $734.5 billion in fee-earning assets under management, or AUM, up 0.5% sequentially and 4.1% year over year. Total AUM was $1.007 trillion, up 0.6% sequentially and 5.9% on a year-over-year basis. Adjusted net inflows of $2.4 billion during the third quarter were well off the positive $26.8 billion quarterly run rate we’ve seen for flows the past two years.

Total revenue (which includes the effects of unrealized activity) increased 104.2% year over year on higher levels of unrealized performance allocations (despite lower realized performance and principal investment gains). Year-to-date top-line growth (including the effects of unrealized activity) was negative 1.1% as the company lapped strong results from the first half of 2022. Third-quarter (full-year) management fee income was up 6.0% (8.9%) year over year, which was slightly better than our expectations for the full year. Fee-related earnings (which measure profits from revenue received on a recurring basis and not subject to future realization events) of $1.1 billion during the September quarter were down 4.7% year over year (and down 1.2% when looked at on a year-to-date basis in comparison with 2022 results).

Distributable earnings (which remove the effects of unrealized activity) were $1.2 billion, or $0.94 per share, down from $1.4 billion, or $1.06 per share, in the third quarter of 2022, as results were adversely impacted by lower segment revenue and a rise in core operating expenses. This was below the FactSet consensus estimate of $1.01, as well as our own estimate of $1.02 per share, which explains why the company’s shares are trading down the morning of Oct. 19.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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