Goldman Sachs (GS +1%) saw a muted reaction to its strong Q2 earnings, despite a 9% increase in its quarterly dividend. Shares have risen roughly 24% since last quarter, putting Q2 results under intense scrutiny. The slimmer earnings beat compared to Q1, slower revenue growth in several divisions, and economic uncertainties kept investors cautious.
- Q2 results were still impressive, with double-digit growth in its primary divisions: Global Banking & Markets (GBM) and Asset & Wealth Management (AWM). The sale of its consumer business, GreenSky, in March supported a 16.8% year-over-year revenue increase to $12.73 billion, slightly up from Q1's 16.1%. Adjusted EPS surged 180% year-over-year to $8.62.
- GBM grew by 14% year-over-year to $8.18 billion, although sequential revenue fell by 16% due to a moderate decline in investment banking fees and equities revenue. CEO David Solomon is optimistic about a recovery in M&A, which could boost GBM revenues.
- AWM outpaced GBM with a 27% year-over-year revenue increase and a 2% sequential rise. Equity investments, especially in real estate, showed substantial gains compared to net losses in Q2 2023. AWM also benefited from higher average assets under supervision, lifting management and other fees.
- Goldman Sachs does not typically issue formal guidance, so CEO David Solomon's comments on the operating environment are significant. He noted ongoing geopolitical instability and persistent inflation but remained optimistic about the U.S. economy, predicting a soft landing as economic growth improves. Solomon also highlighted AI's potential to drive considerable financing needs, boosting demand for GS's services.
The main takeaway is that Goldman Sachs' Q2 results continued last quarter's positive momentum, albeit at a slower pace. Given the impressive rally in GS shares over the past three months, today's muted reaction is not surprising. With the sale of GreenSky, GS can focus on its core strengths, reducing its exposure to the consumer banking sector, which faced challenges in Q2. This positions GS to maintain robust revenue growth despite near-term uncertainties.
