At the time of writing, Hargreaves Lansdown (LSE:HL) shares are down 10%. The company released its final results for the 2021 fiscal year this morning. The reason (or reasons) for the Hargreaves Lansdown share price slide must surely be contained within the results announcement.
How did Hargreaves Lansdown fare in 2021?
Hargreaves Lansdown had a good year if only top-line numbers are considered. It attracted a record 233,000 net new clients and £8.7bn of net new business (£7.7bn in 2020) in 2021. The active client base grew 17% to 1.645m in 2021, and total assets under management swelled from £104bn in 2020 to £135.5bn in 2021.
On the back of the growth in clients, assets, and activity, Hargreaves Lansdown grew its revenues by 15% from £551m to £631m in 2021. That should have been a boon to the Hargreaves Lansdown share price. However, bottom-line numbers were not so impressive.
Profit after tax fell from £313m to £296m in 2021. Diluted earnings per share fell 5% from 65.9p to 62.5p in 2021. Also, although the total ordinary dividend increased from 37.5p to 38.5p per share from 2020 to 2021, special dividends fell. Hargreaves Lansdown paid shareholders a total dividend of 50.5p per share in 2021 compared to 54.9p in 2020.
Not in line with expectations
Large price swings after financial updates, like the 10% drop seen in the Hargreaves Lansdown share price, usually mean the company has missed estimates. Is this the case here? Analysts expected £637m in revenues for 2021. Hargreaves Lansdown failed (slightly) to meet analyst revenue expectations. Profit after tax for 2021 was also below the £309m consensus analyst expectations. There was also a negative surprise on actual earnings per share, which fell below the expected 65p. Dividends per share also fell short of the 52p consensus forecast.
So, on the whole, Hargreaves Lansdown’s performance was slightly disappointing in 2021 compared to expectations. But, the largest disappointment was in profit after tax, coming in 4.2% below expectations. Revenue was just 0.9% below what was expected, with earnings and dividends per share somewhere in between.
Hargreaves Lansdown share price drop
Do these relatively modest misses justify a 10% drop in the Hargreaves Lansdown share price? Well, investors in the company clearly think that they do. But there is a narrative beyond the numbers which may justify what might be viewed as an extreme reaction.
Hargreaves Lansdown’s 2021 fiscal year occurred during the coronavirus pandemic. There was an industry-wide boom in activity as furloughed employees turned to investing and speculating at home with time and cash on their hands. Market volatility and meme stocks seem to have increased the appeal of stocks and shares trading. That is what is behind the record new business and customer acquisitions seen in 2021. Hargeaves Lansdowns client base got younger and shifted to almost completely digital, with 98% of trades being made online.
But with greater numbers of clients trading more frequently and digitally, profits actually fell. That might be worrying investors. There was also a warning that dealing volumes and client activity have fallen as the UK entered the summer months and Hargreaves Lansdown started its 2022 fiscal year. I think this might have been an early warning that 2022 results might not be as good as 2021, and indeed, analysts are forecasting such a scenario. But, in the medium term, beyond the post-pandemic ‘normalisation’ period, Hargreaves Lansdown is positive about retaining a good chunk of those new and younger clients.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.