BlackRock stock drops 7% on revenue miss – Buy the dip?

Are investors overreacting to the revenue miss?

The world’s largest asset management firm, BlackRock (NYSE: BLK) saw its stock price plummet as much as 7% on Tuesday after mixed results in its fiscal second quarter.

The selloff seemed a bit reactionary, given the decent numbers that BlackRock posted in Q2. Revenue was up 12.5% in the second quarter to $5.42 billion, but it came in a tad below estimates of $5.44 billion.

Net income jumped 7% to $1.59 billion, or $10.19 per share. On an adjusted basis, earnings surged 16% year-over-year to $12.05 per share, which easily beat estimates of $10.70 per share.

In addition, assets under management surged 18% to a record $12.5 trillion. That’s not including some $185 billion in assets under management from the acquisition of HPS Investment partners, which closed on July 1.

So, what caused investors to sell?

ETF flows remain strong

BlackRock, via its iShares brand, is the leader in exchange-traded funds. This has been a record-setting year so far for ETF flows, with $192 billion flowing in through the first half of the year. In the second quarter alone, Blackrockʻs ETF flows were $85 billion, so the pace was slightly slower than Q1.

Also, BlackRock had $41 billion in outflows from its institutional funds and accounts, which may have raised a red flag among investors. Overall, including ETFs, retail funds, institutional accounts, and cash management products, BlackRock had $68 billion in net inflows, which is down from Q1.

But the slightly lower Q2 flows were due to a $52 billion redemption by a single institutional client from a fixed income fund. That caused the overall institutional net outflows and likely led to the revenue miss.

Equity funds had $28.8 billion in net inflows in the quarter, while fixed income saw $4.6 billion in outflows while multi-asset funds had $6.7 billion in outflows.

But BlackRock was buoyed by $9.8 billion in inflows into alternatives, $14.1 billion into digital assets, and $4.5 billion into currency and commodities. Most of the flows into digital assets were into its popular iShares Bitcoin Trust (NASDAQ:IBIT) exchange-traded product.

“BlackRock’s sustained growth has been powered by our whole portfolio approach, being the first firm to bring together active and index at scale,” Blackrock chairman and CEO Laurence Fink said. “And now we’re building on our foundational platform to redefine the whole portfolio once again by integrating public and private markets across asset management and technology.

Should you buy the dip?

According to Bloomberg, the 7% decline was the worst earnings day drop for Blackrock stock in more than a decade.

The stock price, as of late afternoon, was still down almost 6% on the day to around $1,048 per share. Year-to-date, BlackRock stock is up about 2.7% and has returned around 28% over the past year.

BlackRock stock has historically been tied to the fortunes of the stock market, so when the stock market is strong, BlackRock shares usually spike. When markets are down, Blackrock has struggled.

But in recent years, BlackRock has been expanding more into alternatives, private markets, crypto, fixed income, and technology solutions to become more of an all-weather performer.

BlackRock stock has an average annualized return of 13.3% over the past 5 years and 11.8% over the past 10 years, which is slightly better than the S&P 500 when dividends are reinvested.

BlackRock stock is a little expensive, trading at 27 times earnings, but its roughly inline with the median P/E of the S&P 500.

Wall Street analysts are mostly bullish, with a median price target of $1,97.50, which would suggest a 14% return over the next 12 months. Given its leadership in ETFs and its pivot and expansion into new asset classes, a downturn like this seems like a great opportunity to consider a market leader like BlackRock.