Envestnet Rides Wealth Management Success to Growth

By Markets Fool.com

There is a host of companies that offer necessary services to the giants of the financial industry, and like many others, Envestnet (NYSE: ENV) has benefited from the strength of the financial markets over the past several years. The provider of information technology services that help wealth management firms handle their clients more effectively and efficiently has seen strong growth recently, and coming into Monday's third-quarter financial report, Envestnet investors wanted to see large gains in revenue, with at least incremental progress in boosting adjusted earnings per share. Envestnet largely delivered on what investors wanted to see, and the efforts the company has made to become a more important part of the financial industry appear to be succeeding. Let's take a closer look at what Envestnet said about its quarter -- and what lies ahead for the company.

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A look at the information Envestnet's products can provide. Image source: Envestnet.

Envestnet pulls in more business

Envestnet's third-quarter results showed the growth trajectory that the company has been on for some time. Revenue jumped 44% to $149.2 million, accelerating from its growth pace in the previous quarter. Net income on a generally accepted accounting principles (GAAP) basis was again negative, but adjusted net income was up a third to $12.5 million. That worked out to adjusted earnings of $0.28 per share, which topped the consensus forecast among investors by $0.02 per share.

Taking a closer look at the numbers, Envestnet's operating metrics generally continued to gain ground. Total platform assets continued their quick rise, topping the $1.05 trillion mark and growing by a third in just the past year. Envestnet now boasts almost 5.88 million platform accounts on its systems, up from just 3.2 million a year ago, and 52,000 advisors are now using the company's platform -- either through licensing arrangements or by keeping assets under management or administration through the system.

One major reason for the gains in revenue was the inclusion of Yodlee, which Envestnet acquired in November 2015. Subscription and licensing revenue more than tripled from year-ago levels, and the resulting increase of almost $36 million in revenue accounted for about three-quarters of Envestnet's overall top-line gains. Yodlee's acquisition also resulted in corresponding increases in operating expenses, which is one reason why net income hasn't climbed at the same pace as revenue.

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Favorable markets also continued to be a factor in driving Envestnet's success. Assets under management or administration were up about $16 billion from the second quarter of 2016, and an $8.4 billion positive market impact accounted for more than half of that overall gain. Net inflows supported the rest of the gains, with roughly proportional gains in both managed assets and assets under administration.

CEO Jud Bergman remained pleased about Envestnet's progress. "Our enterprise clients and financial advisors are turning to Envestnet's integrated offering of automated data aggregation, goals-based planning, data analytics, and advisor-centric wealth management solutions," Bergman said, "to leverage better intelligence and deliver better outcomes in support of their clients' best interest."

Can Envestnet keep climbing?

The strategic moves that Envestnet has put in place have also had the desired effect of creating a pipeline for new business. As the CEO noted, "The financial benefits of recent acquisitions are becoming apparent, and we continue to sign agreements with large enterprises, including most recently two of the top wealth management firms in the U.S."

One concern, though, is that Envestnet once again gave guidance that was less than some investors had hoped to see. The financial platform provider said that it expects revenue to be between $153 million and $155.5 million during the fourth quarter, which is less than the $159 million consensus forecast among investors currently. Similarly, guidance for adjusted earnings of about $0.30 per share would be significantly below the $0.34 per share that investors currently expect.

Envestnet investors didn't react immediately to the news, leaving the stock unchanged in after-hours trading following the announcement, and it's possible that the better-than-expected results for the third quarter will outweigh disappointing guidance for the fourth quarter in terms of immediate stock movement Tuesday. Nevertheless, Envestnet has set itself up for substantial growth in the long run, and as long as financial markets cooperate, Envestnet has the potential to take full advantage of new opportunities to make its business even bigger.

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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.