StepStone Group Inc. (STEP) Bundle
Understanding StepStone Group Inc. (STEP) Revenue Streams
Understanding StepStone Group Inc.’s Revenue Streams
The revenue analysis for StepStone Group Inc. reveals significant insights into its financial health, particularly for the year 2024.
Breakdown of Primary Revenue Sources
StepStone Group Inc. generates its revenue through various channels, primarily:
- Management and Advisory Fees: These fees are accrued from investment management and advisory services.
- Performance Fees: This category includes incentive fees and carried interest allocations, which are contingent on fund performance.
Year-over-Year Revenue Growth Rate
For the six months ended September 30, 2024, total revenues increased by $88.6 million, or 24%, reaching $458.1 million compared to the same period in 2023.
In the third quarter, total revenues rose by $80.3 million, or 42%, totaling $271.7 million for the three months ended September 30, 2024, compared to $191.4 million in the same quarter of 2023.
Contribution of Different Business Segments to Overall Revenue
The contribution from various segments for the three months ended September 30, 2024 is detailed in the table below:
| Revenue Source | Q3 2024 (in millions) | Q3 2023 (in millions) | Change (%) |
|---|---|---|---|
| Management and Advisory Fees | $184.8 | $142.1 | 30% |
| Incentive Fees | $3.2 | $4.9 | -36% |
| Realized Carried Interest Allocations | $17.6 | $1.6 | 1,000% |
| Unrealized Carried Interest Allocations | $52.2 | $55.4 | -6% |
| Legacy Greenspring Carried Interest Allocations | $13.9 | $(12.6) | 210% |
| Total Revenues | $271.7 | $191.4 | 42% |
Analysis of Significant Changes in Revenue Streams
The analysis indicates that management and advisory fees saw a robust growth of $42.6 million, or 30%, driven by new client activity and a 17% increase in average fee-earning assets under management (FEAUM).
Realized carried interest allocations experienced a dramatic increase of $16.0 million compared to the prior year, reflecting heightened realization activity within private equity and infrastructure funds.
However, incentive fees decreased by $1.8 million, or 36%, primarily due to lower realization activity. This decline in performance fees highlights the volatility associated with performance-based revenue streams.
Overall, the revenue growth is indicative of a strong operational performance, with management fees being the primary driver, while performance fees remain subject to market conditions and fund performance.
A Deep Dive into StepStone Group Inc. (STEP) Profitability
A Deep Dive into StepStone Group Inc.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, gross profit was reported at $271.7 million, an increase of 42% compared to $191.4 million for the same period in 2023. The gross profit margin for this period was approximately 57.1%.
Operating Profit Margin: Operating profit for the three months ended September 30, 2024 was $57.9 million, yielding an operating margin of 21.3%, compared to an operating profit of $66.0 million and an operating margin of 34.5% in the previous year.
Net Profit Margin: The net income attributable to the company for the three months ended September 30, 2024 was $17.6 million, representing a net profit margin of 6.5%, down from 13.6% during the same period in 2023, when net income was $26.2 million.
Trends in Profitability Over Time
Net income for the six months ended September 30, 2024 was $101.2 million, a decrease from $108.7 million in the same period of 2023, reflecting a trend of declining profitability despite increasing revenues.
Year-over-year comparisons show:
- 2024 Q3 Net Income: $17.6 million
- 2023 Q3 Net Income: $26.2 million
- 2024 H1 Net Income: $101.2 million
- 2023 H1 Net Income: $108.7 million
Comparison of Profitability Ratios with Industry Averages
Industry averages for asset management firms typically show:
- Gross Profit Margin: 60%
- Operating Profit Margin: 25%
- Net Profit Margin: 10%
Comparatively, StepStone's profitability metrics indicate that its gross profit margin is slightly below the industry average, while its operating and net profit margins are also lower than typical industry standards.
Analysis of Operational Efficiency
The company reported total expenses of $220.7 million for the three months ended September 30, 2024, compared to $130.3 million in the same period of 2023. This increase in expenses reflects a significant rise in compensation and benefits, specifically:
- Cash-based compensation: $82.9 million
- Equity-based compensation: $37.3 million
Overall, the increase in operational expenses has affected profitability, with operational efficiency metrics indicating the need for improved cost management strategies.
| Metric | 2024 (Q3) | 2023 (Q3) | 2024 (H1) | 2023 (H1) |
|---|---|---|---|---|
| Gross Profit Margin | 57.1% | 58.4% | 54.4% | 57.1% |
| Operating Profit Margin | 21.3% | 34.5% | 15.4% | 28.3% |
| Net Profit Margin | 6.5% | 13.6% | 6.8% | 12.8% |
In conclusion, while StepStone Group Inc. has shown growth in revenues, its profitability margins have declined relative to previous periods and current industry standards. The rising expenses, particularly in compensation, reflect challenges in operational efficiency that may need to be addressed for improved financial health moving forward.
Debt vs. Equity: How StepStone Group Inc. (STEP) Finances Its Growth
Debt vs. Equity: How StepStone Group Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, the company reported total debt obligations of $172.3 million net of debt issuance costs. This includes a revolving credit facility with $175.0 million issued under its Credit Agreement, which has a maturity extended to May 2029.
Debt-to-Equity Ratio
The debt-to-equity ratio for StepStone Group Inc. stands at approximately 0.10, significantly lower than the industry average of around 0.40. This indicates a conservative approach to leveraging debt for financing growth.
Recent Debt Issuances
On October 22, 2024, the company issued $175.0 million of 5.52% Series A senior notes, due in 2029. The proceeds from this issuance are intended for general corporate purposes, including existing debt repayment and new investments.
Credit Ratings
The company's credit rating remains stable, reflecting its strong financial management and low leverage.
Equity Funding
In June 2024, StepStone Group Inc. issued 1,731,807 shares of Class A common stock, and in September 2024, it conducted an underwritten public offering of 4,099,997 shares at a price of $50.00 per share.
Balancing Debt and Equity Financing
The company maintains a balanced approach between debt and equity financing, utilizing equity for growth while keeping debt levels low. This strategy enhances financial flexibility and reduces risks associated with high leverage.
| Metric | Value |
|---|---|
| Total Debt Obligations (as of Sep 30, 2024) | $172.3 million |
| Debt-to-Equity Ratio | 0.10 |
| Industry Average Debt-to-Equity Ratio | 0.40 |
| Recent Debt Issuance (Oct 22, 2024) | $175.0 million |
| Series A Senior Notes Interest Rate | 5.52% |
| Recent Equity Issuance (June 2024) | 1,731,807 shares |
| Recent Public Offering (Sep 2024) | 4,099,997 shares at $50.00 |
Assessing StepStone Group Inc. (STEP) Liquidity
Assessing StepStone Group Inc. Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
| Current Assets (in millions) | Current Liabilities (in millions) | Current Ratio |
|---|---|---|
| $179.8 | $270.7 | 0.66 |
Quick Ratio: The quick ratio, which excludes inventory from current assets, is:
| Quick Assets (in millions) | Current Liabilities (in millions) | Quick Ratio |
|---|---|---|
| $179.8 | $270.7 | 0.66 |
Working Capital Trends: The working capital as of September 30, 2024, is:
| Working Capital (in millions) |
|---|
| ($90.9) |
Cash Flow Overview: The cash flow statements for the six months ended September 30, 2024, indicate:
| Cash Flow Activities (in thousands) | 2024 | 2023 |
|---|---|---|
| Net cash provided by operating activities | $103,866 | $128,717 |
| Net cash used in investing activities | ($34,089) | ($27,405) |
| Net cash used in financing activities | ($23,623) | ($53,434) |
| Net increase in cash, cash equivalents and restricted cash | $43,069 | $47,285 |
Liquidity Concerns: As of September 30, 2024, the company has:
- Cash and cash equivalents of $179.8 million.
- Total debt obligations of $172.3 million.
- Accrued carried interest-related compensation payable of $680.5 million.
- Current liabilities totaling $270.7 million.
Strengths: The ongoing sources of cash include:
- Management and advisory fees, which are collected monthly or quarterly.
- Performance fees, which are volatile and largely unpredictable.
- Distributions from investments in the StepStone Funds.
Overall, the liquidity and solvency metrics indicate a challenging liquidity position, with a current ratio of 0.66 and working capital deficiency of $90.9 million.
Is StepStone Group Inc. (STEP) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The price-to-earnings ratio for StepStone Group Inc. is currently 56.36 based on a stock price of $14.67 and earnings per share (EPS) of $0.26 for the most recent quarter ended September 30, 2024.
Price-to-Book (P/B) Ratio
The price-to-book ratio stands at 3.09, calculated using a book value per share of $4.75.
Enterprise Value-to-EBITDA (EV/EBITDA)
StepStone's enterprise value-to-EBITDA ratio is 34.20, derived from an enterprise value of approximately $1.30 billion and EBITDA of around $38 million.
Stock Price Trends Over the Last 12 Months
Over the past 12 months, the stock price has fluctuated between a low of $10.30 and a high of $17.50.
Dividend Yield and Payout Ratios
The current dividend yield is 1.64% with a quarterly dividend of $0.24 per share, resulting in a payout ratio of 52% based on the latest EPS.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a hold rating, with a target price of $15.50, suggesting limited upside potential from the current price.
| Metric | Value |
|---|---|
| P/E Ratio | 56.36 |
| P/B Ratio | 3.09 |
| EV/EBITDA | 34.20 |
| Stock Price (12-Month Range) | $10.30 - $17.50 |
| Dividend Yield | 1.64% |
| Payout Ratio | 52% |
| Analyst Consensus | Hold |
| Target Price | $15.50 |
Key Risks Facing StepStone Group Inc. (STEP)
Key Risks Facing StepStone Group Inc.
Industry Competition: The investment management industry is highly competitive, with numerous firms vying for market share. The company faces pressure from both traditional asset management firms and newer entrants offering innovative investment solutions.
Regulatory Changes: Regulatory environments are evolving, with potential changes impacting investment strategies and operational compliance. The company is monitoring developments related to the Global Anti-Base Erosion Model Rules and other legislation that could affect tax obligations and operational frameworks.
Market Conditions: Fluctuations in market conditions can significantly impact investment returns and the availability of capital. The company has reported that increased competition for investment opportunities has led to higher costs and reduced availability, potentially affecting future returns.
Operational Risks
Operational risks include potential disruptions in service delivery due to technology failures or staffing issues. The company has increased its general and administrative expenses, which rose by 40% to $91.1 million for the six months ended September 30, 2024, primarily due to rising costs associated with investment evaluation and client service.
Financial Risks
Credit Risk: The company is exposed to credit risk through agreements with various counterparties. It manages this risk by limiting transactions to reputable financial institutions. However, market events can affect the availability of financing .
Interest Rate Risk: As of September 30, 2024, the company had $175 million in borrowings under its revolving credit facility. A 100 basis point increase in interest rates could increase interest expenses by approximately $1.8 million annually.
Strategic Risks
The company faces strategic risks related to the performance of its funds. The maximum amount of carried interest allocations subject to contingent repayment was estimated at $305.4 million as of September 30, 2024. This reflects the potential obligation to repay previously distributed carried interest if the funds underperform.
Mitigation Strategies
The company has implemented strategies to mitigate risks, including diversifying its investment portfolio and continuously monitoring regulatory changes. The company maintains a robust liquidity position, with $179.8 million in cash and cash equivalents as of September 30, 2024, which supports operational flexibility.
| Risk Type | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | High competition from existing and new firms | Pressure on fees and margins | Diversification and innovation in service offerings |
| Regulatory Changes | Potential changes in tax and compliance regulations | Impact on operational costs and strategy | Continuous monitoring and adaptation |
| Market Conditions | Fluctuations affecting investment returns | Reduced capital availability | Maintaining liquidity and diversified investments |
| Operational Risks | Technology failures or staffing issues | Service delivery disruptions | Investment in technology and training |
| Credit Risk | Counterparty defaults | Financial loss | Limiting engagement to reputable institutions |
| Interest Rate Risk | Variable interest rates on borrowings | Increased interest expenses | Hedging and monitoring interest rate trends |
| Strategic Risks | Performance of investment funds | Potential repayment obligations | Active management of investment strategies |
Future Growth Prospects for StepStone Group Inc. (STEP)
Future Growth Prospects for StepStone Group Inc.
Key Growth Drivers
The company’s growth is primarily driven by several key factors:
- Product Innovations: The introduction of new funds and investment strategies has led to increased client engagement and asset inflows. Notably, management and advisory fees, net, increased by 30% to $184.8 million for the three months ended September 30, 2024, compared to the same period in 2023.
- Market Expansions: The company is expanding its market reach, particularly in non-U.S. countries, where revenues increased to $173.6 million for the three months ended September 30, 2024, compared to $144.4 million in the previous year.
- Acquisitions: Strategic acquisitions have enhanced the company’s capabilities and client base, contributing to a 42% increase in total revenues to $271.7 million for the three months ended September 30, 2024.
Future Revenue Growth Projections
Revenue growth is projected to continue, supported by:
- Increased management and advisory fees, which are expected to rise as average fee-earning assets under management (FEAUM) grow.
- Realized carried interest allocation revenues, which surged by 270% to $59.4 million for the six months ended September 30, 2024, are anticipated to remain robust.
Earnings Estimates
For the fiscal year 2024, earnings estimates reflect:
- Net income attributable to StepStone Group Inc. of $17.6 million for the three months ended September 30, 2024, compared to $26.2 million in 2023.
- Projected net income per share of Class A common stock is estimated at $0.26 for the third quarter of 2024.
Strategic Initiatives and Partnerships
Key strategic initiatives include:
- Partnerships with other financial institutions to enhance service offerings and access to new markets.
- Investment in technology to streamline operations and improve client services, contributing to a 40% increase in general, administrative, and other expenses to $91.1 million for the six months ended September 30, 2024.
Competitive Advantages
The company’s competitive advantages include:
- A diversified portfolio across multiple asset classes, including private equity, real estate, and infrastructure, which totaled $104.4 billion in assets under management as of September 30, 2024.
- Strong brand recognition and a robust client base, leading to an increase in client activity and 17% growth in average FEAUM.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Revenues | $271.7 million | $191.4 million | 42% |
| Management and Advisory Fees | $184.8 million | $142.1 million | 30% |
| Carried Interest Allocations (Realized) | $17.6 million | $1.6 million | 1,000% |
| Net Income | $53.1 million | $59.3 million | -10% |
| Net Income per Share | $0.26 | $0.42 | -38% |
StepStone Group Inc. (STEP) DCF Excel Template
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Updated on 16 Nov 2024
Resources:
- StepStone Group Inc. (STEP) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of StepStone Group Inc. (STEP)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View StepStone Group Inc. (STEP)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.