Envestnet (ENV), Mid/Small Cap AI Study of the Week

Envestnet Inc. presents a compelling investment case with its robust recurring revenue, strategic restructuring outcomes, positive income trajectory, expanding client base, and proactive interest income generation. While the company faces headwinds from industry-specific risks ...

Envestnet (ENV), Mid/Small Cap AI Study of the Week

November 29, 2023

Weekly AI Pick from the S&P 400 or S&P 600

Envestnet Inc. (ENV)

Company Overview

Envestnet, Inc. is a leading technology company operating in the financial sector. The company offers two main business segments: Envestnet Wealth Solutions and Envestnet Data & Analytics. The former provides financial advisors with the tools they need for wealth management and efficient practice management, while the latter powers data connectivity and business intelligence across digital financial services. Envestnet, Inc. serves approximately 106,000 advisors and 6,900 firms, including some of the largest U.S. banks and wealth management firms.

The company operates in sectors including data analytics, financial planning software, financial technology, and wealth management. It leverages emerging market trends to grow its revenues, with products like Envestnet | MoneyGuide, a leading financial planning software, and various offerings under Envestnet Data & Analytics. The company generates revenue from both asset-based and subscription-based services. It sees significant opportunities for revenue and profit growth due to the rising consolidation in the wealth management industry, increasing demand for personalized technology and investment services, increasing investments in data and AI, and the shift towards independent and fee-based advice.

Envestnet, Inc. provides enterprise clients, financial advisors, and financial institutions with access to investment solutions and services like private-labeled technology platforms, driven by a SaaS-based model. The firm also generates revenue from professional services such as client onboarding and technology development. The company aims to expand its customer base, offer new features to increase market competitiveness, enhance operating efficiency, and pursue strategic transactions. It uses data-driven marketing efforts and aims to increase its digital marketing to optimize search, drive traffic to digital solutions and websites, and measure audience engagement.

Despite operating in a heavily regulated industry and facing fierce competition, Envestnet, Inc. has positioned itself favorably by offering a comprehensive set of products and services. The company operates under the rules of the Office of the Comptroller of the Currency and the Investment Company Act, and it offers programs such as separately managed accounts, unified managed account portfolios, and mutual fund portfolios. The company emphasizes its commitment to innovation, inclusion and respect, collaboration, client service, and accountability as its core values. It has implemented training programs and talent acquisition strategies to promote a more diverse and inclusive workforce and offers numerous learning and development opportunities for its employees.

 By the Numbers

Annual 10-K Report Summary:

  • Total platform assets decreased from $5.72 billion in 2021 to $5.09 billion in 2022.
  • Total advisors decreased from 108,543 in 2021 to 105,545 in 2022.
  • Total platform accounts increased from 17,548,881 in 2021 to 18,347,055 in 2022.
  • Total revenues increased by 4% from $1,186,517,000 in 2021 to $1,239,784,000 in 2022.
  • Asset-based revenues increased by 4%.
  • Subscription-based revenues increased by 5%.
  • Total operating expenses surged by 14% from $1,145,976,000 in 2021 to $1,305,808,000 in 2022.
  • Net loss of $80,939,000 in 2022 compared to a net income of $13,296,000 in 2021.
  • Envestnet Wealth Solutions income decreased from $124,651,000 in 2021 to $55,972,000 in 2022.
  • Envestnet Data & Analytics segment went from an income of $2,033,000 in 2021 to a loss of $20,870,000 in 2022.

Quarterly 10-Q Report Summary (Q3 2023):

  • Envestnet Wealth Solutions total recurring revenue increased by 7% to $270,714,000.
  • Envestnet Data & Analytics subscription-based recurring revenue decreased by 20% to $38,126,000.
  • Total consolidated revenue for Q3 2023 increased by 3% to $316,847,000.
  • Adjusted EBITDA rose by 26% to $67,242,000.
  • Net income recovered to $5,056,000 in Q3 2023 from a loss of $8,660,000 in Q3 2022.
  • Total recurring revenue increased by 3% to $308.84 million.
  • Asset-based recurring revenue increased by 9% to $193.9 million.
  • Subscription-based recurring revenue decreased by 7% to $114.9 million.
  • Professional services and other revenue increased by 38% to $8.007 million.
  • Employee compensation decreased by 7%.
  • General and administrative expenses decreased by 1%.
  • Depreciation and amortization expenses increased by 4%.
  • Other expenses increased by 103%.
  • Effective tax rate was -33.8% compared to 3.1% in the previous year.
  • Envestnet Wealth Solutions net income was $78,254,000.
  • Envestnet Data & Analytics net loss was $27,888,000.
  • Asset-based recurring revenue decreased by $15.2 million (3%) in Q3 2023 compared to Q3 2022.
  • Subscription-based recurring revenue increased by $10.7 million (5%) in Q3 2023 compared to Q3 2022.
  • Total assets managed/accounts served increased from 2.7 million to 2.9 million by the end of Q3 2023.
  • Direct expenses decreased by $7.1 million (2%).
  • Employee compensation decreased by $5.1 million (2%).
  • General/administrative expenses decreased by $17.4 million (17%).
  • Depreciation and amortisation expense increased by $1.5 million (2%).
  • Income from operations rose by $28.4 million (57%).

Stock Performance and Technical Analysis

Starting with the price movement, the stock is trading 14% above its 52-week low, which suggests that it has seen some recent upward movement from its lowest point in the past year. However, being 44% below its 52-week high also indicates that the stock has experienced significant selling pressure from its peak. This wide range between the high and low could signify high volatility or a substantial change in the company's valuation or market perceptions. The recent price trend seems negative, with a 3.94% decline over the last month, yet the price has been relatively stable over the last quarter. This could imply that after a period of decline, the stock might be finding a new, lower level of support.

Volume is a critical component to consider. The recent daily volume is significantly higher than the longer-term average, indicating increased trader interest or potential liquidity in the stock. However, higher volume coupled with a declining price trend might suggest that the stock is under selling pressure. This is corroborated by the Money Flow indicators, which indicate moderate selling pressure and distribution, meaning that more investors are likely selling their shares than buying.

The Moving Average Convergence Divergence (MACD) is a momentum indicator, and its current bearish reading (-1.05) suggests that in the short term, the stock is losing momentum and could continue to decline. The bearish MACD should be considered in conjunction with other indicators before making an investment decision, as it is just one piece of the puzzle.

In conclusion, the stock currently shows a bearish trend with increased volatility, higher trading volume, and negative momentum. While the price stabilization over the last quarter and the position above the 52-week low might be seen as potential positive signs, the overall technical analysis would likely lead to a cautious approach. An investor or trader should carefully consider the broader market context, the company's fundamentals, and other non-technical factors before making a final investment decision.


The ‘Bull’ Perspective

Title: Envestnet Inc. - A Resilient FinTech Contender Poised for Growth


  1. Robust Recurring Revenue Streams: Envestnet boasts a solid foundation with a 3% year-over-year increase in total recurring revenue, indicating a dependable income source.
  2. Strategic Restructuring Benefits: The company's recent restructuring efforts, including a reduction in force, have resulted in a 7% decrease in employee compensation, contributing to improved financial health.
  3. Positive Income Trajectory: Envestnet has demonstrated a commendable turnaround, with net income recovering from a loss of $8.66 million in Q3 2022 to a gain of $5.056 million in Q3 2023.
  4. Expanding Client Base: The company serves an increasing number of advisors and companies, with total assets managed/accounts served growing from 2.7 million to 2.9 million.
  5. Proactive Interest Income Generation: Through savvy financial maneuvers such as the Convertible Promissory Note, Envestnet is generating additional interest income, diversifying its revenue streams.


  1. Robust Recurring Revenue Streams:
    Envestnet Inc. showcases a durable financial structure with its recurring revenue streams, which have seen a 3% uptick, totaling $308.84 million. This growth is underpinned by a 9% increase in asset-based recurring revenue, now at $193.9 million. Despite a 7% decline in subscription-based recurring revenue, the company's ability to maintain a stable revenue base amidst market fluctuations is commendable. The recurring nature of these revenues provides a predictable cash flow, crucial for long-term planning and investment in innovation, which is particularly important given the competitive pressures highlighted in Envestnet Data & Analytics' 20% revenue reduction.
  2. Strategic Restructuring Benefits:
    Envestnet's strategic restructuring, evident in the 7% reduction in employee compensation, is a decisive move towards financial optimization. This downsizing is part of a broader initiative that has incurred $25.9 million in severance costs, with future payments spread until 2030. While the layoffs may present short-term challenges and affect morale, the long-term savings and efficiency gains are expected to strengthen the company's financial standing, which is crucial in light of the ongoing economic uncertainties and the potential impacts of recent news headlines such as the tightening of FAA aircraft certification oversight, which may indirectly affect market confidence.
  3. Positive Income Trajectory:
    The turnaround from a net loss to a net gain is a significant milestone for Envestnet. The company's net income improved by a remarkable $13.716 million swing from Q3 2022 to Q3 2023. This recovery signifies not only the resilience of Envestnet's business model but also the effectiveness of its strategic initiatives. A positive income trajectory instills investor confidence and may counterbalance some of the identified risks, such as the company's reliance on the financial services industry, which is sensitive to regulatory changes like those the SEC may face with its in-house enforcement legality being weighed by the US Supreme Court.
  4. Expanding Client Base:
    Envestnet's client base expansion, from 2.7 million to 2.9 million in assets managed/accounts served, demonstrates the company's growing market presence and the trust it has earned within the financial advisory sector. This growth is instrumental for scaling the business and diversifying risk, especially in the face of potential client loss due to external factors like the recent regional banking crisis. The increase in clients also suggests that Envestnet's offerings remain competitive, which is critical given the recent influx of US funding into states like Pennsylvania, Arizona, and Texas for Ukraine arms, indicating a possible shift in investment focus that could affect the financial services landscape.
  5. Proactive Interest Income Generation:
    The Convertible Promissory Note agreement, which introduced $20 million at an 8% interest rate, is a strategic financial lever for Envestnet. This move not only bolsters the company's cash reserves but also generates $1.1 million in interest income, providing a cushion against the risks associated with its substantial debt obligations. Such financial agility is essential in navigating the complex regulatory environments both domestically and internationally, as well as in responding to external shocks like the ongoing COVID-19 pandemic, which continues to pose a risk to global economic stability.

In conclusion, Envestnet Inc. presents a compelling investment case with its robust recurring revenue, strategic restructuring outcomes, positive income trajectory, expanding client base, and proactive interest income generation. While the company faces headwinds from industry-specific risks and broader economic uncertainties, its financial performance and strategic initiatives position it well to navigate these challenges and capitalize on future growth opportunities.

The ‘Bear’ Perspective

Title: The Case for Caution: A Closer Look at Envestnet Inc.'s Financial Health and Market Risks

Upfront Summary:

  1. Revenue Vulnerability: Envestnet's reliance on a few key clients and the financial services industry poses a significant risk to its revenue stream, with recent downturns in the Data & Analytics segment highlighting this exposure.
  2. Debt Servicing Concerns: The company's sizable debt obligations, including $620 million in Convertible Notes, could strain financial resources, especially if cash flow is impacted by market volatility.
  3. Market and Economic Sensitivity: Fluctuating market conditions directly affect Envestnet's asset-based fees, which have recently shown a concerning decrease, indicating potential future revenue instability.
  4. Technological and Competitive Risks: Envestnet must continuously innovate to stay ahead in a competitive industry, but this comes with the risk of increased costs and the potential for falling behind larger competitors.
  5. Operational and Strategic Risks: International operational risks, coupled with the company's aggressive acquisition strategy, could lead to integration issues and heightened exposure to global market instability.

Detailed Analysis:

  1. Revenue Vulnerability
    Envestnet's financial ecosystem is heavily reliant on the financial services industry, which is inherently volatile. In the most recent quarter, the company's Envestnet Data & Analytics segment witnessed a 20% reduction in subscription-based recurring revenue, amounting to $38,126,000. This downturn is a stark reminder of the risks associated with Envestnet's dependency on specific clients and industry sectors. Notably, a significant portion of revenue comes from a contract with FMR LLC, and any changes in this relationship could have a disproportionate impact on the company's financial health. The ongoing regional banking crisis further exacerbates this vulnerability, as financial institutions reassess their expenditures and investment patterns.
  2. Debt Servicing Concerns
    Envestnet's financial obligations include $45.0 million of Convertible Notes due in 2023 and a substantial $575.0 million due in 2027. These debts necessitate a consistent cash flow for servicing, which may become challenging in an unstable market. The company's current interest income of $1.1 million generated from a Convertible Promissory Note does little to offset the potential cash outflows required for debt servicing. Moreover, the capped call transactions related to the Convertible Notes issuance pose a dilution risk to shareholders, which could further impact the stock's attractiveness.
  3. Market and Economic Sensitivity
    The company's asset-based recurring revenue, which recently decreased by 3%, is directly tied to market performance. With asset values dropping, Envestnet's revenue from this stream has been negatively affected, reflecting the sensitivity of the company's business model to economic conditions. This sensitivity is further highlighted by the overall 3% increase in total consolidated revenue, which may not be sustainable if market conditions worsen. The company's effective tax rate of -33.8% also raises questions about the sustainability of its financial strategy in the face of changing tax laws and potential regulatory scrutiny.
  4. Technological and Competitive Risks
    Envestnet operates in a sector where technological advancements occur rapidly, necessitating continuous investment in innovation. This need for constant enhancement not only increases operational costs but also introduces the risk of technological obsolescence. Larger entities within the financial industry pose a competitive threat, as they often have more resources to invest in technology and market expansion. Envestnet's recent restructuring, involving layoffs and severance expenditures of $25.9 million, indicates the company's struggle to streamline operations while maintaining its competitive edge.
  5. Operational and Strategic Risks
    The company's international operations expose it to risks associated with complex foreign regulations, political instability, and potential unfamiliarity with U.S. laws. These factors could lead to unforeseen operational challenges and financial penalties. Additionally, Envestnet's growth strategy, which includes acquisitions, carries the risk of integration failures, loss of key personnel, and culture clashes. The recent increase in professional services and other revenue by 38% to $8.007 million may not be enough to counterbalance the risks associated with the company's aggressive expansion approach.

In conclusion, while Envestnet Inc. has shown some resilience in its recent financial performance, the company's future remains clouded by significant risks. Investors should exercise caution, given the company's revenue vulnerability, debt servicing concerns, sensitivity to market and economic conditions, technological and competitive risks, and operational and strategic challenges. These factors, combined with the broader market uncertainties reflected in current news headlines, suggest a cautious approach to Envestnet's stock.