Envestnet Earnings: Wealth Solutions Is Okay but Continued Weakness at Yodlee Data and Analytics

Envestnet ENV reported an okay second quarter. Revenue of $312 million were 1% below the FactSet consensus while adjusted EBITDA of $58 million and adjusted EPS of $0.46 was roughly in line. The firm’s wealth solutions business is being affected by industrywide trends such as the shift toward cash while the Yodlee business is experiencing continued softness. While management only modestly tweaked its guidance, we note that the firm’s profit guidance is weighted heavily toward the fourth quarter. Overall, we are maintaining our fair value estimate of $54 as market appreciation is offset by lower data and analytics revenue.

Wealth solutions results were okay. Net flows into AUM/A programs were $10 billion, a downtick from $20 billion in the first quarter and $19 billion in the year-ago period. Inflows were healthy and the culprit was net outflows as clients increasingly allocate their holdings to cash. The firm’s fee rate is holding flat rather than increasing from upsells due to mix shifts.

The Yodlee business (data and analytics segment) continues to be soft with revenue declining 13%, slightly worse than the 12% decline in the first quarter. The firm’s research business, which provides anonymized data to asset managers, continues to struggle though management is optimistic that new data sets can stabilize the business. In addition, financial technology firms and banking firms are also facing challenges. We believe investors should brace themselves for continued softness in this segment.