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Envestnet Holds Up Well Despite Market Weakness

By Dan Caplinger – Feb 25, 2016 at 6:27PM

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The wealth-management technology company topped expectations despite sluggish performance from stocks.


Image: Envestnet.

Financial professionals have benefited from the bull market in stocks since 2009, and Envestnet (ENV -2.08%) has made it its business to help support them. Although big firms can afford their own proprietary firm-management systems, smaller advisory firms and individual professionals turn to Envestnet for help with their back-office operations.

Coming into Thursday's fourth-quarter financial report, Envestnet investors were concerned about the potential impact of the market downturn on the company's business, but the growth numbers that Envestnet produced were solid, and better than many had expected. Let's look more closely at Envestnet's latest results, and what's ahead for the company in the future.

Envestnet sees few signs of market turbulence
Envestnet's fourth-quarter results included impressive gains that investors hadn't expected to see. Adjusted revenue climbed 23%, to $118.6 million, accelerating from their pace in the third quarter, and topping the 20% revenue gains that those following the stock were expecting. Adjusted net income saw even healthier gains of 31%, to $11.3 million, and that worked out to adjusted earnings of $0.28 per share. That was $0.05 above the consensus forecast among investors.

Taking a closer look at the company's operating metrics, Envestnet continued to make progress. Assets under management and administration climbed 18%, to just less than $290 billion. The company added 235,000 new fee-based accounts, to reach 1.3 million.

Almost 34,000 advisors are now using the service, up 18% over the past year, and gross sales amounted to almost $50 billion. Interestingly, the market's performance actually added $5.3 billion to its total.

Investors got their first look at Yodlee during the quarter. From the November acquisition date to the end of 2015, Yodlee brought in $14.3 million in revenue, producing $3.4 million in adjusted EBITDA. The primary Envestnet segment still represented most of the company's total revenue, with an 8% rise in segment revenues, and a 14% gain in adjusted EBITDA for the investment side of the business.

CEO Jud Bergman praised his company's results. "2015 was a transformational year for Envestnet," Bergman said, and he termed the company as being "well-positioned to be the preeminent enabling technology in wealth management." Yet the CEO also saw the power of diversification, pointing to the Yodlee acquisition in helping broaden Envestment's scope.

What's next for Envestnet?
In particular, some important areas will now be in reach for Envestnet. "The merger with Yodlee broadens our business opportunity beyond wealth management to include financial technology and data analytics," said Bergman, "significantly expanding our addressable market and providing additional sources for growth."

Indeed, investors seem to be getting more comfortable with the idea that Envestnet might not need bull-market conditions in order to grow. If financial professionals start having trouble retaining clients, they might be more likely to turn to Envestnet for help in handling other functions of their businesses. At the same time, if Envestnet can make its other services of value to advisors, then they could produce even more growth.

Envestnet shares are still likely to trade in sync with the moves of the overall stock market, because most investors continue to link its fortunes to those of the financial markets. Yet if the company's strategic vision is correct, then Envestnet has already made big inroads toward becoming less dependent on favorable financial markets for its future revenue and profits. That result would be a big long-term win for Envestnet and its shareholders.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Envestnet. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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