Goldman Sachs Group Inc, (NYSE: GS) announced its Q3, 2023 for the period ended on September 30 reports on October 17, 2023. GS exceeded its revenue expectations by more than $60 Million and fell short of EPS expectation by 1.26%.
During the press release, David Soloman, CEO declared quarterly dividend of $2.75 per common share of Goldman Sachs. The record date for the same is November 30 and it will be issued on December 28. The dividend yield of GS is close to 3% and there is no change in the absolute amount of dividend from the last quarter. Historically, dividend yield has been growing for last 10 quarters while the amount in absolute terms remained stable through four quarters before moving up, slightly. On that basis, GS stockholders are expected to earn the same dividend for the next two quarters.
Net Profits and Net Revenue are Following a Cyclical Trend
There is a huge spike in net profits (attributable to shareholders) in comparison with last quarter by 75% from $1,071 Million to $1,882 Million. Despite the huge increase in profits on a quarterly basis, net revenue declined by 57% (annually basis). Essentially, there is volatility in the net profits trend.
Looking at the above graph and the trend formed in the graph the company is showing seasonality in its revenue which is skeptical for a leading financial company like Goldman Sachs. If the current trend continues Net Profit can take a U-turn from the current level as Quarter four of 2022 had lower Net Profits.
Fall in net profits in this quarter could also be due to the state of the US economy. Rising inflation and the corresponding rise in fed reserve rates are worrying. Given the present state and the trend in net profits till now, it is likely that the figure will fall further in the coming quarters.
Net revenue increased by 8% on a quarterly basis from $10,895 Million to $11,817 Million. Revenue break-up (segment wise): Global Banking & Markets up 11%, Asset & Wealth Management up 6% while Platform Solutions is down by 12%.
Both net revenue and net profits are following a cyclical trend. But a decrease in revenue led to a decrease in profits by a larger amount, suggesting that the intensity of fall in net profits is higher than the intensity of fall in net revenue and it will further lead to decrease in the profitability of the company.
The declining trend in net revenue and net profits pushed the revenue forecast for the next quarter to $11.42 Billion, lower than the actual revenue for the current quarter by $40 Million. But, the EPS forecast for the next quarter is up by 10 to 15% ($ 6.2 to $6.25). Looking at the differences in the forecasts, GS is expected to report an increase in profitability.
GS is Effectively Maintaining the Risk Parameters to Support Financial Stability
Balance sheets of the financial services companies are analyzed on the basis of Risk Weighted Assets (RWA), Value at Risk (VaR) and the Provision for the Debts. The soundness of RWA is computed in regards to Capital Ratio. The current common equity tier 1 capital ratio is 14.8% well above the minimum criteria of 8% and there is an increase in Capital ratio by 0.4% from last quarter. The company has adequate capital to support operations and growth.
VaR denotes the minimum value of loss or the entry point to losses on the periodical basis. Daily VaR represents the maximum acceptable value of losses like if the losses exceed the number then it is expected that it will lead to further losses. Goldman Sachs has reduced its VaR for all the four categories: VaR for interest rates, Equity prices, Currency rates is declined by 25%, 10%, 24% respectively while for Commodity VaR is increased by 12.5%.
Provision for Credit Losses or Debts is reduced by 74% for a quarter from the similar period in previous year. The Provision for Credit Losses was $1,743 Million last year which is now reduced to $ 451 Million.
GS Stock is Currently Trading Close to its 52-Week Low
The stock of Goldman Sachs Group Inc. has created a bearish movement in the prices since the announcement of quarterly reports. GS stock is trading close to 52-week low price at around $309, 1.5% lower than the previous trading day, attracting buyers.
About GS
Goldman Sachs is a global financial institution that provides various financial services to a large and diversified client base that includes financial institutions, governments, corporations and individuals. The company was founded in 1869, starting from New York now GS has offices in almost all the major financial centers of the world. The major services that are offered by Goldman Sachs are Advising: companies on buying and selling businesses, raising capital and managing risks to enable growth. Finance: helps local, state and national governments in financing their operations to support infrastructure development. Transact: transact for clients in all the key financial markets including equities, bonds, currencies and commodities so that capital flows and jobs could be created and the overall economy can grow. Support: helps in markets to remain efficient and liquid so investors and companies can meet their needs of investing, raising money or managing risks. Manage: Preserve and grow assets for institutions including mutual funds, pension funds, foundations and individuals as well. Invest: they are also investors to some of the major businesses to support growth. Innovate: develop new products and paths to growth of financial markets.
Source: https://www.thecoinrepublic.com/2023/10/18/goldman-sachs-smashes-revenue-forecast-will-gs-stock-follow-same/