Friday, May 13, 2016

70th AIM Student Equity Update by Brendan Duffy: Envestnet (ENV) "Hope That ENV Can Become the Market Leader in Data Aggregation"

 Envestnet (Ticker: ENV) "Remain Cautious, But Hopeful That the ENV Strategy Plays Out" 
By: Brendan Duffy, student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Brief Firm Overview: Envestnet, Inc. provides integrated portfolio, wealth management technology, practice management and reporting solutions to financial advisors and institutions. Its web-based platform, Tamarac, helps to unify portfolio management, modeling, rebalancing, trading, billing and reporting with a client portal and enterprise-level client relationship management system. The company's wealth management software empowers advisors to manage their practice and advise their clients on financial planning, capital markets assumptions, asset allocation guidance, research and due diligence on investment managers and funds, portfolio management, trading and rebalancing, multi-custodial, aggregated performance reporting, and billing calculation and administration.
  • Evestnet’s stock saw a slight decline after initiating coverage after the market saw its first correction in several years. Many analysts lost confidence in investment as many of their revenue streams are tied to the overall market. Factset currently valued Env at around $20 and it was initiated with a price target of $43.
  • Since November’s earnings the stock has bounced back ranging from 29-32 over the last several months. We bought the stock at $28 dollars and I still believe there is potential for upside. They have beat factsets earnings each of the quarters we have held the stock.
  • On April 27th Env won MMI industry leadership award for advisory solutions provider of the year—outsourced investment advisory service. The award honors the technology or service provider whose outsourced investment advisory services offerings best exemplify overall excellence and the qualities most valued by managers, program sponsors, and financial advisors.

Financial Results for Q1 2016 Compared to Q1 2015:
Adjusted Revenues increased 37% to $132.0 million for the first quarter of 2016 from $96.5 million for the first quarter of 2015. Total revenues also increased 37% to $131.8 million for the first quarter of 2016 from $96.5 million for the first quarter of 2015.

Operating expenses increased 61% to $144.6 million in the first quarter of 2016 from $89.8 million in the first quarter of 2015. Cost of revenues increased 4% to $40.2 million in the first quarter of 2016 from $38.7 million in the first quarter of 2015.
“First quarter results reflect ongoing support and growth among our advisors and financial institutions, adding over 2,000 advisors to the platform and increasing subscription and licensing revenue to over $43 million,” said Jud Bergman, Chairman and CEO.
“Our product development teams have been fully engaged on the integration of data aggregation and financial planning capabilities into the Envestnet platform portals, delivering the preeminent enabling technology in wealth management, empowering the essential advisor of the future with a deeply integrated end-to-end platform and enabling advisors and financial institutions to deliver better financial outcomes for their clients,” concluded Mr. Bergman.
Envestnet (NYSE:ENV) The AIM Fund initiated coverage on August 28, 2015. The stock was pitched on the investment thesis that it would see recurring revenue from its deal with favorable secular trends, new market opportunities, and the acquisition of yodlee. All three of these are still in play with Yodlee on track to add 100 basis points to EBITA margins for fiscal year 2016. Since being bought the company has also brought in new clients and set up a target market in Africa through Yodlee.

What has the stock done lately: As the market got off to a slow start to the year so did Envestnet. The stock price dipped down to as low as $20 at the beginning of the year as market sentiment weakened. Since then they have announced quarterly earnings and the price has moved back up to around where we bought it at.

Takeaway: I would be cautious with this stock. As market sentiment weakens so does the stock price. It has strong fundamentals and has been doing well performance wise, but I would still remain cautious. There is potential for massive upside if the acquisition of Yodlee leads them to be a market leader in data aggregation for all sorts of funds.