BlackRock profits jump 10%: Three takeaways from Q2 earnings

Key points

• BlackRockʻs profits rose 10% in Q2

• ETFs drove its revenue, with a record first half for ETF inflows

• Is BlackRock stock a buy?

Blackrock set a record with $10.6 trillion in assets under management in the second quarter, led by high ETF flows.

BlackRock (NYSE: BLK) stock was trending up Monday after the asset management giant posted strong second quarter earnings, buoyed by robust ETF inflows and a rising stock market.

The asset manager reported $10.65 trillion in assets under management at the end of Q2 — a 13% increase from the same quarter a year ago and a record for the firm.

Here are three main takeaways from BlackRock’s Q2 earnings.

Profits jump 10%

The asset manager saw net income rise 10% in the quarter to $1.5 billion, or $9.99 per share. That topped analysts’ estimates of $9.95 per share. Also, BlackRock’s operating margin rose to 37.5%, from 36.2% a year ago this quarter.

BlackRock generated $4.8 billion in revenue in the quarter, up 8% year-over-year. It had $81.6 billion in net inflows into its funds, up nearly 2% from the same quarter a year ago. Expenses rose 6.2% in the quarter.

ETFs drive growth

BlackRock, the largest provider of ETFs through its iShares funds, had a record first half with $150 billion in net inflows into is ETFs.

In the second quarter alone, its iShares ETFs generated $83 billion in net inflows, while its retail mutual funds only had $6 billion in net inflows. Further, its money market funds and cash products saw $30.1 billion in inflows, but Its institutional accounts brought the total down with $37 billion in net outflows.

“Organic growth was driven by private markets, retail active fixed income, and surging flows into our ETFs, which had their best start to a year on record,” Laurence Fink, chairman and CEO, said in the earnings release.

Its cash cow has been the BlackRock iShares Bitcoin Trust (NASDAQ: IBIT), which became the fastest ETF to reach $10 billion in assets under management. It reached that plateau in March after launching in January.

It is now the largest Bitcoin ETF with $18 billion in assets, surpassing the Grayscale Bitcoin Trust (NASDAQ: GBTC), which has roughly $15.6 billion in managed assets.

Branching out into private markets

BlackRock is making a big push to develop products, including ETFs, to facilitate private market investing, which involves investing in privately held companies, as opposed to publicly traded stocks.

Earlier this month, it acquired a private equity data company called Preqin to bolster it Aladdin platform, which money managers and institutional investors use to manage their portfolios. Fink believes that enhanced data and transparency will lead to advanced analytics and benchmarks that will ultimately transform private markets, like they have for public markets.

“Just as indexes have become the language of public markets, we envision that we can bring the principles of indexing, even iShares, to the private markets,” Fink said earlier this month. “We believe that indexes and data will be important future drivers of the democratization of all alternatives, and this acquisition is the unlock.”

Also, BlackRock is closing on its acquisition of Global Infrastructure Partners in the third quarter. GIP is a leading infrastructure fund manager, with $100 billion in assets under management in infrastructure investments. The $1 trillion infrastructure market is considered one of the fastest growing segments of private markets, making it a good fit with Prequin.

Is BlackRock stock a buy?

BlackRock stock is very cyclical, and it is in a great cycle right now, helped by the 18-month and counting bull market. That said, shares are only up about 2% YTD and 14% over the past 12 months, so it has not been flying as high as one might expect.

But that is good for investors because the valuation is relatively good with a P/E ratio of 20 and it should have some room to run, particularly with rates cuts likely to happen in the next few months.

It looks like a solid buy right now.