The fintech industry poses a ton of opportunities for investors. From Lemonade to Upstart, these stocks have explosive growth potential as they blend technology with finance to bring financial services into the digital age. Investing in fintechs can be risky, though. Many of these companies are still in the early stages of customer acquisition and growth, and the stocks will be volatile as a result.
One under-the-radar fintech that many investors may not consider is BlackRock (NYSE:BLK). You are likely familiar with BlackRock’s products, most notably its iShares ETF (exchange-traded fund) offerings, which give investors opportunities to invest across different asset types, industries, or investment styles. However, BlackRock has been building a technology product in recent years that has seen impressive growth — and it’s time to start considering the fintech opportunity embedded within its business.
BlackRock’s overlooked fintech opportunity
BlackRock has been pushing in recent years to include more technological products. One offering that Chief Executive Officer Larry Fink has been very optimistic about is BlackRock’s Aladdin platform. Aladdin is the technology that is at the core of BlackRock’s business, and it has made this technology available to investors in recent years.
Aladdin is an investment- and risk-management system central to BlackRock’s business that’s now available to institutional investors globally. Its customers include investment managers, pension funds, and insurance companies, to name a few.
This technology allows those institutional investors to perform risk analysis on their portfolios. It also provides other portfolio management tools, like trading and accounting, all on one platform.
The evolution of Aladdin
BlackRock continues to build on Aladdin’s capabilities. In 2019, the company acquired eFront to build on its Aladdin platform. This acquisition helped clients use those risk management tools to measure their risks in both public and private market investments, all on one platform.
In 2020, BlackRock built on its investments into sustainability by launching Aladdin Climate. This software lets investors see the risks that climate change and the transition to a low-carbon economy would have on their portfolio of investments.
Then in February 2021, BlackRock acquired Aperio to integrate with its Aladdin product. This acquisition creates a whole-portfolio solution for advisors to provide customized tax-optimized index equity separately managed accounts (SMAs). SMAs are portfolios of assets managed by professional firms, targeting the wealthy and giving clients more customization and tax advantages than traditional mutual funds.
Technology is a small portion of revenue but continues to see impressive growth
In 2021, BlackRock earned nearly $1.3 billion from technology, up 12.5% from the year before as more clients turned to its Aladdin platform. Since BlackRock began breaking out technology revenue in 2018, this revenue has grown at a 17.7% compound annual rate.
It still makes up a small portion of BlackRock’s revenue. And this is mainly because BlackRock’s other revenue sources from fees relating to its ETF products are so huge. In 2021, technology services made up 6.6% of its total revenue — up from 2018, when technology accounted for 5.5% of its revenue.
During BlackRock’s fourth-quarter earnings call, Fink said: “Our multi-decade investment into Aladdin technology platform continues to differentiate BlackRock both as an asset manager and a leading fintech provider. … We remain focused on continually evolving Aladdin for the next decade and beyond.”
A hidden fintech worth investing in
BlackRock has shown its ability to dominate with its ETF and other investment options. The company recently crossed $10 trillion in assets under management, a testament to the strength of its product offerings.
However, Aladdin could be another pillar of growth for this already solid financial stock. Aladdin makes up a significant amount of BlackRock’s technology revenue, and it’s a stable source of recurring revenue since these tend to be long-term contracts. BlackRock has proven itself as a solid company, and its investments in Aladdin should drive growth in technology revenue and make it an under-the-radar fintech you should consider adding to your portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.