🏦 When Is Great Not Quite Enough?

Goldman reported all-around growth in business in Q4, driven by equities trading and investment banking

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When Is Great Not Quite Enough?

Goldman reported all-around growth in business in Q4, driven by equities trading and investment banking. However, its stock still fell. So what gives?

Background: The 1MDB scandal and the $5B in fines Goldman Sachs had paid to global regulators sounds like it happened eons ago. That fine had wiped out the first nine-month profits for the Wall Street behemoth. Still, the analysts were expecting strong results from Goldman from Q4 since the bank had made a habit of beating expectations quarter after quarter.

The company’s shares have underperformed the industry over the last three months as the company absorbed legal issues and volatility in client activity and overseas revenues. However, Goldman has been leading the charge for many of the IPOs that were being lined up, and the expectations on performance this quarter were high.

What Happened? Goldman Sachs posted stellar Q4 earnings with all of its business segments reporting growth in revenue and profitability.

Key Numbers for the quarter:

  • EPS: $12.08 vs. $7.47 expected
  • Revenue: $11.74B vs. $9.9B expected

For the year ended Dec 31, 2020, Goldman recorded net earnings of $9.46B over net revenues of $44.56B. This is the company’s highest net revenue since 2009. For the quarter, net earnings clocked in at $4.51B with net revenues of $11.74B – corresponding to the highest profits in more than a decade. Diluted earnings per share for the year were $24.74 compared to $21.03 for the prior year.

For the quarter, fixed income, currencies, and commodities trading rose by 6% to $1.88B; asset management revenue totaled $7.98 billion; consumer and wealth management revenue came in at a record $6 billion. Firm-wide assets rose by $286 billion in 2020 to $2.15 trillion. Goldman had aimed to boost deposits by $100B in the coming year and has already reached $70B.

In spite of these earth-shattering numbers, analysts fretted about the dwindling urgency surrounding capital raising activity, and reduced market volatility in 2021-22. The expectation of revenue decline in the coming year weighed heavily on the stock.

Market Reaction: Goldman shares are up 14% YTD. On Tuesday, GS closed at $294.20, down 2.26%.

Company Snapshot 📈

GS $294.20 -6.81 (-2.26%)

Analyst Rating  (26 Ratings) BUY 62%  HOLD 38%  SELL 0%

Newsworthy 📰

  • What to Expect?: Morgan Stanley is set to report fourth-quarter earnings – here’s what the Street expects (MS -0.33%)
  • Better than Expected: P&G raises forecast after earnings top expectations, fueled by 8% jump in sales (PG -1.18%)
  • Strong Results: Netflix shares rise on strong subscriber growth, considers share buybacks (NFLX +0.76%)

Later Today 🕒

  • After Market Close: United Airlines Holdings Earnings (UAL)
  • After Market Close: Kinder Morgan Inc Earnings (KMI)
  • Before Market Open: UnitedHealth Group Inc. Earnings(UNH)
  • Morgan Stanley Earnings (MS)

Fun Fact of The Day 🌞

In 2008, the cost of a 30-second advertisement was $2.7 million in the Super Bowl broadcast. It is the world’s most costly airtime.

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