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WisdomTree's (WETF) Q2 Earnings In Line, Expenses Flare Up

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WisdomTree Investments (WETF - Free Report) reported adjusted earnings of 9 cents per share, which came in line with the Zacks Consensus Estimate. The bottom line compares favorably with 6 cents reported in the prior-year quarter.

Wisdom Tree gained nearly 1.3% following its second-quarter 2018 earnings release. The company benefited from major growth in revenues and Assets Under Management (AUM). Rise in expenses and a fall in liquidity position were the undermining factors.

WisdomTree’s net income came in at $16.7 million or 10 cents per share compared with $12.1 million or 9 cents per share recorded in the prior-year quarter.

Revenues Rise, Expenses Flare Up

Total revenues for the second quarter were $74.8 million, up 33% year over year. Also, the reported figure surpassed the Zacks Consensus Estimate of $74 million.

Advisory fees rose 32.1% year over year to $73.8 million. The rise stemmed from higher average global AUM.

Expenses surged 46.2% year over year to $60.2 million. Almost all components of cost increased from the comparable period last year. Fresh expenditure on acquisition and contractual gold payments further added to the already elevated figure.

Pre-tax profit margin dropped to 29.7% from 39.5% recorded last year.

Segment Performance

U.S. Listed Business: The segment’s total revenues for the reported quarter were nearly $53.1 million, down 1.3% from the prior-year quarter. Gross margin came in at 83.4%, down from 83.7% in the year-ago quarter.

As of Jun 30, 2018, U.S. listed ETF AUM was $41.3 billion, down 4.3% year over year. The segment witnessed net outflows of $1.2 billion in the quarter compared to $0.6 billion inflows witnessed in prior-year quarter.

International Business: The segment’s total revenues came in at $21.7 million, increasing significantly from the prior-year figure of $2.5 million.

The segment also recorded massive growth in its International listed ETP AUM of $18.6 billion as of Jun 30, 2018, compared to year-ago quarter AUM of $1.5 million.

Balance Sheet

WisdomTree had cash and cash equivalents of $70.7 million as of Jun 30, 2018, compared with $105.7 million as of Mar 31, 2018.  Investments totaled $35.2 million at the end of the quarter.

The company’s stockholders’ equity was $353.3 million compared with $201.6 million as of Mar 31, 2018.

Our Viewpoint

We remain optimistic about WisdomTree’s performance in the future given its inorganic growth strategies. The company’s efforts in innovations and new product offerings, diverse footprint, new sales, and distribution channels should position it well for the long run.

Nonetheless, revenues from U.S. business shrunk in the quarter ended June, partially offsetting top-line growth in the International business segment. Also, stringent regulations might strain the company’s financials in the near future.

WisdomTree Investments, Inc. Price, Consensus and EPS Surprise

WisdomTree Investments, Inc. Price, Consensus and EPS Surprise | WisdomTree Investments, Inc. Quote

WisdomTree currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Competitive Landscape

Charles Schwab’s (SCHW - Free Report) Q2 earnings of 60 cents per share surpassed the Zacks Consensus Estimate of 58 cents. Also, earnings surged 54% from the year-ago quarter.

Evercore (EVR - Free Report) delivered a positive earnings surprise of 17.9% in second-quarter 2018. Adjusted earnings per share of $1.65 outpaced the Zacks Consensus Estimate of $1.40. Also, the figure came in 55.7% higher than the prior-year quarter.

E*TRADE Financial (ETFC - Free Report) recorded a positive earnings surprise of 6.7% in the second quarter. Earnings of 95 cents per share easily beat the Zacks Consensus Estimate of 89 cents. Moreover, results compared favorably with 70 cents recorded in the year-earlier quarter.

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