Goldman Sachs Posts a Rare Earnings Miss

Goldman Sachs' (NYSE: GS) impressive streak of earnings beats just came to an end. After posting earnings that handily exceeded analyst expectations for the past three quarters in a row, the investment banking giant just reported disappointing third-quarter results.

With that in mind, there's more than the headline earnings number to unpack from Goldman's results. Here's a rundown of the headline numbers, as well as some of the other important takeaways from the bank's quarter that investors need to know.

View down Wall Street at sunrise.

Image source: Getty Images.

The headline numbers

To be sure, earnings and revenue numbers don't exactly paint a complete picture of how any company is doing. With that said, however, Goldman's top- and bottom-line numbers aren't likely to impress many people this time out.

The bank's revenue of $8.32 billion was a bit more than experts had been expecting, but earnings of $4.79 per share came in $0.02 shy of estimates.

This is perhaps more significant because Goldman has a history of handily beating analyst earnings expectations. Between the fourth quarter of 2018 and the first and second quarters of this year, Goldman Sachs earned a full $3.33 per share more than analysts had been predicting. On average, the bank beat expectations by a staggering 24% margin in each of the last three quarters. Investors were likely expecting the same in the third quarter, and they simply didn't get it.

Digging a little deeper

As I mentioned, the headline numbers were disappointing, but they don't tell the full story. Plus, there were both good and bad aspects of the earnings report. With that in mind, here are some of the details behind these numbers that are important for investors to know:

  • On the positive side, trading revenue, which has been a weak point throughout the industry for some time, beat expectations on both the fixed-income and equities sides of the business. Equities trading revenue of $1.88 billion and fixed-income trading revenue of $1.41 billion were higher than the market was looking for by $90 million and $50 million, respectively.
  • Goldman's book value grew by 2.2% quarter over quarter to $218.82. Based on the current stock price, Goldman trades for more than 7% less than book value, a significant discount.
  • Although it isn't much of a surprise, Goldman maintained its No. 1 market share in announced and completed M&A transactions, as well as in equity offerings such as IPOs.
  • Goldman's investment management business now has $1.76 trillion under supervision, an all-time high.
  • Goldman's relatively young consumer banking business continues to grow impressively. Revenue from the debt securities and loans portion of the investing and lending business grew by 10% year over year and was one of the strongest parts of the entire report.

As I mentioned, Goldman's third quarter was a mixed bag. Here are some of the not-so-good aspects of the company's earnings report:

  • One particularly negative area of the bank's business in the third quarter was the investing and lending division, which missed revenue estimates by a significant margin. The big driver of this disappointment was a 40% drop in equity securities revenue, which includes investments that Goldman has made in public and private companies.
  • Goldman Sachs' return on equity (ROE) came in at just 9%, far below the 11.1% figure it produced in the second quarter.
  • Investment banking revenue dropped 15% compared with the third quarter of last year, thanks to negative catalysts such as lower industrywide M&A volume and a decrease in IPO activity.

Should investors be worried?

Goldman Sachs' third quarter was certainly a disappointing one, but it's important to realize that most of the disappointment can be attributed to poor results from the company's investment portfolio and a general slowdown in the need for investment banking services, not necessarily Goldman's business itself. In fact, in many ways, Goldman's business actually did quite well. Some things are definitely worth keeping an eye on over the next few quarters, but this earnings report shouldn't be a cause for panic.

10 stocks we like better than Goldman Sachs
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Goldman Sachs wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of June 1, 2019


Matthew Frankel, CFP, has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More