Goldman outpaces expectations, will it be good enough?
2min read Goldman Sachs (GS) reported strong second-quarter earnings, with net revenue reaching $12.73 billion, surpassing the estimated $12.39 billion and marking a 17% year-over-year increase. The firm's bottom line also impressed, as earnings per share (EPS) exceeded expectations, reflecting robust performance across several key divisions. This substantial revenue beat highlights GS's ability to navigate challenging market conditions effectively.
Shares of Goldman have enjoyed a strong start to 2024, with the stock up 24% year-to-date and 47% over the past 52-weeks. Expectations were high going into the report as Goldman has a long history of big beats. The results were generally better than expected but fall short of the "whisper" numbers. The miss on Advisory fees is a little perplexing. It raises the question of some potential profit-taking in the name following a strong run.
FICC (Fixed Income, Currency, and Commodities) sales and trading revenue came in at $3.18 billion, up 17% year-over-year and above the $3.02 billion estimate. Global Banking & Markets net revenues were $8.18 billion, exceeding the $7.95 billion estimate and showing a 14% year-over-year increase. Equities sales and trading also performed well, with revenues of $3.17 billion, slightly ahead of the $3.08 billion estimate and up 6.8% year-over-year. However, investment banking revenue fell slightly short at $1.73 billion, compared to the $1.82 billion estimate, although it still represented a 21% year-over-year increase.
Advisory revenue was a mixed bag, achieving $688 million against the $778.1 million estimate, but still growing by 6.7% year-over-year. In contrast, equity underwriting revenue was a bright spot, reaching $423 million, which was above the $411.1 million estimate and up 25% year-over-year. Debt underwriting revenue also surpassed expectations at $622 million, beating the $614.7 million estimate and rising by 39% year-over-year. These results underline the firm's strength in capital markets activities.
The provision for credit losses was significantly lower than anticipated, at $282 million compared to the $468 million estimate, marking a 54% year-over-year decrease. This improvement was driven by better performance in the credit card portfolio, highlighting GS's effective risk management practices. Additionally, the platform solutions pretax loss was $147 million, better than the estimated $207.3 million loss, reflecting improvements in the firm's technology investments.
Operating expenses remained a point of concern, coming in at $8.53 billion, which was higher than the estimated $8.1 billion and essentially unchanged year-over-year. Compensation expenses rose to $4.24 billion, up 17% year-over-year and above the $4.06 billion estimate, due to increased payouts reflecting improved operating performance. Despite these cost pressures, GS maintained a strong efficiency ratio of 67%, though slightly above the 65.3% estimate.
Overall, Goldman Sachs delivered a solid quarter with notable beats in several revenue streams and effective cost management in credit provisions. However, higher operating expenses and specific shortfalls in advisory revenue and investment banking remain areas to watch. Looking ahead, the firm's performance in managing expenses and capitalizing on market opportunities will be crucial for sustaining its growth trajectory.