Goldman Sachs (GS) expects market share gains to support revenue sustainability going forward

Shares of Goldman Sachs (NYSE: GS) remained in red territory on Thursday. The stock has gained over 6% over the past one month. The company reported double-digit increases in revenue and profits for the third quarter of 2020 on Wednesday, helped by strength across its businesses.

Quarterly numbers

Revenues rose 30% to $10.7 billion while profits jumped 93% to $3.6 billion, or $9.68 per share. The company saw revenue growth across all its business segments and geographies.

Goldman Sachs benefited from high client engagement levels during the quarter and also made progress across its strategic initiatives. The improvements in the market and the countercyclical performance in market-making also contributed to the strong results. M&A activity picked up during the quarter after staying relatively dormant for the most part of this year. The company also managed to maintain a strong position in underwriting.

Segment performance

Investment Banking witnessed a 7% growth in revenue, despite a reduction in transaction closings and client activity in Financial Advisory. M&A activity picked up significantly with deal volume rising over five times that of last quarter. The biggest momentum came from equity underwriting where revenues more than doubled from a year ago. The company also gained market share in global IPOs.

Revenues in Global Markets increased 29% and market share expanded, helped by attractive bid offer spreads, a supportive market-making environment and higher client activity. In FICC, the company benefited from solid client flows and tighter investment grade and high-yield credit spreads.

Within Global Markets, Goldman Sachs continues to invest in its technology platforms and amid the COVID-19 pandemic, the company has witnessed a pickup in client adoption and onboarding across its automated platforms. The market share gains experienced by this business is expected to support revenue sustainability going forward.

Asset Management revenues jumped 70% helped by a rebound in the market and the positive performance of Goldman Sachs’ portfolio of companies. Revenues in Consumer & Wealth Management rose 13% thanks to higher wealth management assets under supervision and consumer banking revenues.

Macroeconomic conditions

The monetary and fiscal support from central banks and governments across the world are proving beneficial to the market. During the third quarter, the Federal Reserve forecasted that short-term rates would remain locked near zero for the next several years.

The unemployment rate in the US dropped to 7.9% in September, reflecting a fall of around 50% from the April peak, driven mostly by the reversals of temporary layoffs. The pace of economic recovery is likely to be hindered by the pandemic heading into the fall and winter.

Goldman Sachs estimates US GDP to improve by 120 basis points in 2020 to an expected contraction of 3.4%. The company is more optimistic for 2021 and is forecasting a growth of nearly 6% in the US.

Click here to read the full transcript of Goldman Sachs Q3 2020 earnings call