Invesco Ltd. (NYSE:IVZ) is benefiting from its robust assets under management (AUM) balance, diversified product offerings, and global presence. Synergies from strategic buyouts and manageable expense levels will also likely keep aiding the company’s profitability. Yet, a challenging operating environment is expected to hurt its top-line growth.

Looking at the fundamentals, Invesco’s total operating expenses have witnessed a negative compound annual growth rate (CAGR) of 4.8% over the last three years ended 2022. The trend persisted in the first quarter of 2023. Further, Invesco exceeded its target of realizing net cost synergies from the OppenheimerFunds acquisition and also achieved annualized net savings well ahead of schedule.

As the company’s inorganic growth efforts, technology upgrades, and inflation are likely to put pressure on expenses, we expect total expenses (adjusted) to witness a marginal rise this year.

Though the total AUM balance declined in 2022, the same witnessed a CAGR of 2.2% over the last three years ended 2022. The acquisition of OppenheimerFunds primarily resulted in the rise in the company’s AUM. The uptrend continued on a sequential basis in the first quarter of 2023.

Further, IVZ has been capitalizing on the growing demand for passive products and alternate asset classes, which were 32.2% and 12.5% of total AUM, respectively, on Mar 31, 2023. We project passive AUM and alternate asset class AUM balance to witness a CAGR of 8.2% and 8.9%, respectively, by 2025.

Apart from a strong presence in the United States, Invesco maintains a solid foothold in Europe, Canada, and the Asia-Pacific. As of Mar 31, 2023, the company’s client AUM outside the United States constituted almost 29% of the total AUM. Acquisitions of Intelliflo, along with Europe-based Source, have improved market share globally and continue to support its global presence. These and other broad diversification efforts will likely help the company to generate further momentum from business in such regions.

Further, analysts are optimistic about the stock’s earnings prospects. The Consensus Estimate for IVZ’s 2023 earnings has been revised marginally upward over the past 30 days.

In the past three months, shares of IVZ have gained 8.6% compared with the industry’s 11.8% upside.

However, total operating revenues witnessed a six-year (2017-2022) CAGR of 3.2% on a solid AUM balance and the OppenheimerFunds buyout, it has been recording a downtrend since the second half of 2020. Despite having a robust institutional pipeline, diverse product offerings and alternative investment strategies, solid retail channels, and synergies from opportunistic acquisitions, revenues are likely to be under pressure in the near term. We anticipate operating revenues to decline by 4.7% in 2023.

As of Mar 31, 2023, the company’s goodwill and net intangible assets remained considerably high, totaling $15.7 billion (52.9% of total assets). Several factors may initiate the impairment of the book value of such assets, due to which their value may have to be written down. This is likely to affect the company’s financials.

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