Aggressive Athene Expansion And Retail Strategies Will Drive Exceptional Earnings Growth

Key Takeaways

• Strategic focus on key growth trends, including retirement needs and market convergence, supports significant future revenue and earnings expansion.
  
• Aggressive expansion of retirement services and new investment products targets enhanced earnings and improved net margins through scale and individual investor growth.
  
• Apollo's growth is threatened by reliance on asset origination, market volatility, intense competition, cost pressures, and ambitious growth projections.

Catalysts

A private equity firm specializing in investments in credit, private equity, infrastructure, secondaries and real estate markets.

• Apollo Global Management has identified four significant trends that are expected to drive growth: global industrial renaissance, retirement needs, the growth of individual investors, and the convergence of public and private markets. These trends are anticipated to contribute to a doubling of their business over the next five years, directly impacting projected revenue growth.
  
• The firm is targeting a 20% average annual growth in fee-related earnings (FRE) and a 10% average annual growth in spread-related earnings (SRE), with expectations of reaching $10 billion in FRE and SRE by 2029. This indicates optimism about future revenue streams and net margins.
  
• Apollo is aggressively expanding its retirement services platform, Athene, with continued organic growth and new distribution partnerships, expected to significantly boost their earnings and enhance net margins through scale efficiencies.
  
• The launch and expected growth of wealth products like the AAA fund and various retail-focused investment strategies signal a potential increase in revenue from individual investors, thereby enhancing long-term earnings growth.
  
• Apollo’s strategic focus on origination capabilities, with substantial investment in various platforms, positions them to capture excess returns and capital generation, potentially improving net margins and future earnings performance.

Apollo Global Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apollo Global Management's revenue will decrease by -42.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.6% today to 99.9% in 3 years time.
• Analysts expect earnings to reach $6.0 billion (and earnings per share of $10.13) by about December 2027, up from $5.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2027 earnings, up from 17.8x today. This future PE is greater than the current PE for the US Diversified Financial industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 1.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

Apollo Global Management Future Earnings Per Share Growth

Risks

• Dependence on asset origination: Apollo’s growth plan heavily depends on their ability to originate assets with excess returns, which could limit growth if they fail to meet this capacity, impacting revenue and future earnings.
  
• Market volatility and rate fluctuations: As discussed, changes in interest rates and market conditions could affect spread returns and overall investment performance, potentially impacting net margins and earnings.
  
• Intense competition: The increasing demand for private assets might attract more competitors, potentially pressuring fees and affecting Apollo’s revenue growth amidst the competition.
  
• Cost pressures: Building distribution capabilities for retail and individual investors, including potential trailer fees, could increase costs, impacting net margins if not offset by revenue growth.
  
• Reliance on ambitious growth projections: The strategic goals set for the next five years require consistent high performance and market conditions, which if unmet or altered, could negatively affect future earnings projections.

Valuation

• The analysts have a consensus price target of $174.29 for Apollo Global Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $230.0, and the most bearish reporting a price target of just $137.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.0 billion, earnings will come to $6.0 billion, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $174.71, the analyst's price target of $174.29 is 0.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.