Blackrock Struggles to Keep Up with Record Markets Despite Crypto Exposure

The world's largest private equity firm is positioned for continued earnings growth supported by record-high market conditions and demand for access to bitcoin exposure.

Relative Performance Versus Market Indices

Despite its scale and revenue generation reliant on financial transactions, BlackRock's share price has underperformed major US market indices year-to-date (YTD). While the S&P 500, DJIA, and Nasdaq have achieved new highs, BlackRock shares trade lower than at the beginning of the year with a lower price-to-earnings (P/E) ratio compared to the S&P 500. This trend has continued over the past few years as fund manager returns have not aligned with the outperformance of the Magnificent Seven.

Despite attracting attention for entering the cryptocurrency market through an increasingly popular Bitcoin exchange-traded fund (ETF) supporting BTC prices to record highs, the ETF's assets represent a nominal amount relative to BlackRock's asset management capabilities. Launched early in the year, the ETF accumulated $18.5 billion in net assets over three months. However, this compares to $10 trillion in assets under management (AUM) reported last quarter. Asset gains exceeded $1.4 trillion over the past year, approximately 75 times larger than the crypto ETF assets.​

Market Outlook for Upcoming Earnings Release

The consensus estimates indicate the company's earnings per share (EPS) will increase 16.5% year-over-year (YOY) to $9.24, driven by an expected 9.9% revenue growth to $4.66 billion. Given BlackRock's size, this would represent a strong result for a company with a track record of exceeding estimates in previous periods.

Investors will likely focus on several key metrics. Management may provide an updated outlook following the recent acquisition of GIP completed during the quarter. Net flows will also likely receive attention as the pace slowed compared to prior years. While crypto offerings potentially attracted new clients, some existing funds may have been reallocated to different accounts within the company. Rising operating costs could cause concern for investors, but growing AUM may offset this if earnings grow faster than revenue. However, operating expenses will be an important metric to monitor if market conditions weaken, especially with interest rate cuts now less probable in the near term.

Flag or Something Worse?

Blackrock share prices reached a high of $845, catching a bid at levels seen in January 2022. However, since the peak, the share price has experienced a downward correction, forming a potential flag pattern. While losing support between $760-765 would not necessarily alter the broader outlook, it could increase the risk of a sharper selloff towards $700 and the lower boundary of the longer-term channel. However, if the short-term regional support holds firm, the stock could recover towards the highs seen earlier in 2024, increasing the chances of a leg up to $900. An alternative scenario would be for the stock price to find resistance around $820, potentially completing a head-and-shoulders pattern.

Source: SpreadEx / BlackRock

Key takeaways

The world's largest private equity firm, BlackRock, is expected to see continued earnings growth thanks to record-high markets and demand for bitcoin exposure. However, its stock performance has lagged major indices this year. While Blackrock's crypto ETF reached $18.5 billion in assets quickly, that only represents around 0.2% of its total $10 trillion AUM. Investors will look for updates on its acquisition of GIP and assess net flows, operating expenses, and EPS growth as key indicators of the company's performance despite challenges in keeping up with bullish markets.​