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Goldman's 2 divisions (1) Institutional Client Services, and (2) Investing & Lending, are expected to contribute roughly $12.6 billion (36%) and $8.3 billion (24%) to its Total Revenue estimate of $34.95 billion for full-year 2019
Total Revenue [=A+B+C+D]
2019E Revenue Breakdown:
Institutional Client Services = 36%Investing & Lending = 24%Investment Banking = 21%Investment Management = 19%
Goldman Sachs's Business Model
What Does Goldman Sachs Offer?
Investment Banking: This division can be subdivided into two segments –M&A Advisory: It offers advisory services in Mergers & Acquisitions (M&A) and financial restructuring across sectors such as energy and power, industrials, healthcare, materials, technology etc.Equity Underwriting & Debt Origination: offers equity & debt underwriting services, which includes public offerings and private placements.
Institutional Client Services: This division can be subdivided into two segments –FICC (Fixed Income, Currency & Commodity) Trading: Goldman Sachs, through this division, makes markets in and trades interest rate and credit products, mortgage-related securities and loan products and other asset-backed instruments, currencies and commodities.Equity Trading: Goldman Sachs, through its equity trading division, makes markets in and trades equities and equity-related products, structures and enters into equity derivative transactions.
Investment Management: This represents Goldman's asset management arm, which provide private individuals with a full range of mutual fund and alternative investment products, and institutional clients with a fully integrated asset management offering.
Investing & Lending: It represents investing and relationship-lending activities across asset classes - including debt and equity securities, and real estate.
Who Are The Clients?
Goldman Sachs provides investment banking, securities trading, lending and investment management services toLarge Cap & Mid Cap CorporationsFinancial InstitutionsGovernmentsHedge Funds
What Are The Alternatives?
Goldman Sachs business model faces stiff challenges and competition from offerings by its global competitors such as:CitigroupJPMorganMorgan StanleyBank of AmericaBarclaysUSB
Total revenues have increased at an average annual rate of 9% over the last three years, from $30.6 billion in 2016 to $36.6 billion in 2018. However, it is expected to drop by 5% y-o-y in 2019 -- a decrease of $1.6 billion.
Thereafter, Goldman Sachs' revenues are expected to grow at an average annual rate of 3% and cross $37.4 billion by 2021.
Total Revenues [=A+B+C+D]
yoy change in Total Revenues
[A] Investment Banking revenues are expected to drop 7% in 2019.
Although the segment revenues have grown 25% over the last three years --from $6.3 billion in 2016 to $7.9 billion in 2018, we expect it to decrease by 7% y-o-y in 2019 to $7.3 billion.
This would be caused by 15% decline in equity underwriting & debt origination revenues due to negative market conditions and lower consumer activity in underwriting space, partially offset by 2% growth in M&A advisory revenues.
Thereafter, we expect the market conditions to improve in the subsequent years and enable investment banking revenues to cross $8.1 billion by 2021.
Investment Banking [=A+B]
M&A Advisory [A]
Equity Underwriting & Debt Origination [B]
yoy change in Investment Banking
[B] Institutional Client Services (ICS) revenues are expected to decline by 6% from $13.5 billion in 2018 to $12.6 billion by 2019
This segment has contributed more than 36% of total revenues over the last 3 years and is the highest contributing segment of Goldman.
Further, the revenues have shown high volatility over the last three years due to market conditions.
As a result of this dependence, the recent slump in bond yields and lower consumer activity level is expected to reduce its trading revenues by 6% in 2019.
Thereafter, the segment revenues are expected to grow at an average annual rate of 3% and cross $13.5 billion by 2021-- which is at the same level as 2018.
Institutional Client Services [=A+B]
Revenue for Bonds, Currencies & Commodities Trading [A}
Revenue for Equities Trading [B]
yoy change in Institutional Client Services
[C] Investment Management have grown 21% over the last three years -- from $5.8 billion in 2016 to $7.0 billion in 2018.
We expect the revenues to drop by 4% y-o-y in 2019 due to 3 bps decrease in fees as a % of Assets under Management, before recording a slight growth over the next two years.
Overall, the segment revenues are expected to reduce from $7 billion in 2018 to $6.8 billion by 2021.
Investment Management [=A*B]
Goldman's Assets Under Supervision [A]
Fees as % of Assets Under Supervision [B]
yoy change in Investment Management
[D] Although Investing & Lending revenues have grown 2x -- from $4.1 billion in 2016 to $8.3 billion in 2018, we expect the growth to slow down in coming years.
We expect the segment revenues to be around $8.3 billion in 2019, which is at the same level as the previous year.
Thereafter, it is expected to grow at an rate of 4% per annum over the next two years.
This could be attributed to challenging market conditions in 2019, which would impact the segment's growth potential in the subsequent years.
Investing & Lending
yoy change in Investing & Lending
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