Goldman Sachs (NYSE:GS) reported its third-quarter results recently, and handily beat the market's expectations on both revenue and earnings. Goldman's investment bank's revenue grew by an impressive 26% year over year, the institutional client services division grew by 32%, and the company kept expenses in check.
During the quarterly conference call, CFO Harvey Schwartz provided some more insight into the current state of Goldman Sachs. Here are five key points Goldman Sachs management wants you to know.
Market share is growing
Not only did Goldman produce excellent revenue growth, but it is growing its market share as well.
For example, the company now has a 29% global market share in announced M&A, a 300-basis-point year-over-year increase. Goldman also does over $100 billion more in M&A volume than its next closest competitor.
Mutual funds are performing well
According to Schwartz, "the key to long-term success is delivering strong and consistent performance for our investment management clients." It appears the company is succeeding.
Over the past five years, 76% of Goldman's client mutual funds' assets performed in the top two quartiles (the top 50%). Over a three-year time frame, the performance is even better, with 81% in the top half.
The company can adapt to any market conditions
During the call, Schwartz stressed that in order to meet the company's goal of delivering superior returns, it needs to be adaptable. He detailed how Goldman over the years has expanded its global reach with over 50 offices worldwide, and since going public in 1999 has built a strong technology division and organically grew its asset management business from a few hundred million in assets under supervision to $1.15 trillion today.
He stressed that going forward the company is prepared to make any changes necessary to reach its goals. By adapting to the changing market environments over time, Goldman has become a stronger company, and it intends to continue doing so in the future.
Why is the dividend so low?
One analyst put this question to Schwartz during the call, and it is probably on the minds of many investors who want to know why Goldman is expected to produce nearly $17 per share in earnings this year, but is only willing to increase its annual dividend to $2.40.
There are two main methods of returning capital to shareholders: dividends and share repurchases. Goldman prefers the latter.
Share repurchases have the same basic effect as a dividend. Many long-term investors reinvest their dividend income anyway, so the only difference is that instead of owning more stock, the shares you own become inherently more valuable.
Even though Goldman's annual dividend yield is about 1.4%, consider that the company repurchased 7.1 million shares, or 1.6% of the total shares outstanding, during the third quarter alone. This represents an annual rate of about 6.4%, and when combined with the dividend, makes Goldman's return look much better.
The company still has 32 million shares authorized under its current repurchase program, so this should continue at a similarly rapid pace.
Don't worry about the recent market sell-off, or any others
Finally, since the conference call took place on a day when the Dow Jones Industrial Average had lost about 900 points in the previous week or so, naturally there was some concern about what Goldman's management thought about the situation.
As you might expect, Goldman's management doesn't think much of it at all. In fact, Schwartz said the company's economists argued that absolutely nothing had changed regarding the long-term outlook for the global economy.
In other words, Goldman is focused on the long term, and this recent sell-off is based on nothing but short-term, temporary fears. Over an extended period, Goldman is confident it will deliver superior returns for its clients and shareholders without regard to any short-term corrections along the way.