Q2 Results: Goldman Makes ‘Very Substantial’ Investments In Digital Platforms, New Businesses

With “very substantial” investments to create digital platforms as well as new businesses, and its equity market-making business delivering its second-highest quarter in four years, Goldman Sachs posted second-quarter results Tuesday (July 16) that exceeded the expectations of Wall Street on top-line revenues and earnings per share (EPS).

In terms of headline numbers, the company’s $5.81 in adjusted earning per share (EPS) came in significantly higher than estimates of $4.89. Revenues were $9.46 billion, compared to estimates of $8.83 billion. Chairman and Chief Executive Officer David Solomon said that revenues were down slightly compared to last year; however, they showed “solid franchise performance amid a mixed operating environment” nonetheless.

The investment bank forecasts real GDP growth of roughly 2.5 percent in the United States this year and 3.4 percent globally. Solomon said growth in Europe, however, “remains a bit more subdued” at approximately 1.5 percent. China is in the low 6 percent range, which Solomon said is “slower than it has been in many years, but still supportive of global growth.”

Digital Platforms, New Businesses

Executive Vice President and Chief Financial Officer Stephen Scherr said that the media has been, in a way, ahead of the investment bank’s plans on where Marcus (its online banking unit) will grow. Scherr did note in the call, “Obviously, our first place outside the United States was in the UK where the deposit platform has really exceeded our expectations in terms of what it’s been capable of generating.”

Scherr also noted that “there will be opportunities for us to expand in that market.” At the same time, Scherr noted that much talk has centered around Germany: “It’s not surprising that the speculation goes there both in the context of a growing business that we have in continental Europe and the depth of the deposit market in Germany,” Scherr said. Still, he noted that it is “too early to forecast as and if and when we would expand there.”

When it comes to investment speed, Scherr said that the company is “making very substantial organic investments” to create new digital platforms and businesses. Scherr noted in the call, “The depth of that investment cycle will be in 2019 and 2020. Investment spending will continue into 2020 when we will also see more meaningful impact of the reserve build supporting our initial growth in the Apple Card following our expected launch later this summer.”