- WisdomTree reported earnings of $20.1 million on $44.1 million of revenue showing strong growth and margins.
- This is better than I expected in May when I reversed my bearish outlook.
- The company remains a compelling investment given the quality of its funds and its incredibly efficient business model.
On Friday morning WisdonTree Investments (NASDAQ:WETF) announced its second quarter results. The company reported pre-tax earnings of $20.1 million on revenue of $44.1 million (Investors should note that the company currently doesn't pay income taxes as it has a previous tax loss carried over to the present.). These figures show strong growth--64.5% year over year earnings growth an 18.2% year over year revenue growth. Furthermore, the company reported 22.5% year over year AUM growth and 4.8% quarter over quarter AUM growth.
WisdomTree Investments has had a lousy year as the stock is down 41%. The reason for this is that the stock became overheated as a result of unrealistic AUM growth expectations, largely driven by the (almost certainly) unrepeatable success of the Japan Hedged Equity ETF (NYSEARCA:DXJ). When AUM growth came to a standstill in Q1 investors were shocked and aggressively sold off shares in spite of my warning. However expectations quickly swayed in the other direction and the stock lost half of its value in a matter of months. This is in spite of the fact that WisdomTree has an incredible business. It generates strong profit margins by offering a service--ETF management--that requires very little effort and capital and that is in increasing demand. I pointed out that the pendulum had swung too far in May and since then it appears that the stock has bottomed.
Now expectations for the company's growth are more reasonable, and in fact the company is beating them considering that the DXJ is losing interest. The company continues to create products that appeal to investors by using simple indexing strategies that employ some tactics such as currency hedging or emphasizing dividends that should generate better than average returns. With this in mind I continue to think that WisdomTree is a compelling investment at $10/share, and I expect that it will be able to maintain strong margins and even profit growth through most market environments.