The Hargreaves Lansdown (LSE:HL) share price took a minor downturn last week after publishing its latest trading update. The FTSE 100 stock has been fairly volatile over the last 12 months, falling as low as 1,311p and as high as 1,781p per share.
But, overall, the return on investment has been a fairly lacklustre 5%. So what has this business been up to lately? And should I be considering it for my own portfolio?
The share price slips on earnings
As a reminder, Hardgreaves Lansdown is a financial services firm. Beyond providing savings accounts, the company operates an investment platform that enables individuals to invest in the global markets through various financial instruments, including stocks, bonds, exchange-traded funds, and trusts.
Last Friday, it published its first-quarter earnings report for its 2022 fiscal year. And it contained a mixed bag of news. On the positive side, Hargreaves successfully added an additional 23,000 users to its platform. This, in turn, translated into £1.3bn of additional assets under administration, bringing the total to £138bn. While this is lower than the 31,000 new clients brought in over the same period last year, it has subsequently led to the total number of active users reaching 1.67 million.
Despite this growth, total revenue for the period actually fell by 1%, from £143.7m to £142.2m. What happened? Revenues largely originate from commission fees for executing trades on its platform. However, as lockdown restrictions have eased, the volume of transactions has started to fall.
During the quarter, around 861,000 trades were made each month. That’s down from 980,000 a year ago. And with fewer trades moving through the platform, income from commission fees has suffered.
This isn’t too surprising since management warned shareholders that a reduction in trading volumes would be likely in its previously issued guidance. But, nevertheless, seeing the Hargreaves Lansdown share price take a slight hit on this news makes sense to me.
A buying opportunity?
While the falling transaction volumes are somewhat disappointing, I think it’s worth remembering that 2020 was an exceptional year. After all, most people were stuck at home. And all non-essential stores, restaurants, and entertainment facilities were also closed for most of the year.
Consequently, the UK household savings ratio jumped from 8.9% to 25.9% in a matter of months when the pandemic began. With capital to spare, many individuals started investing, creating a highly favourable environment for Hargreaves Lansdown and its share price to thrive in.
Therefore, a more meaningful comparison in my mind is to the transaction volume achieved in 2019. And this figure stood at 479,000 trades per month over the same period. In other words, despite trading activity falling recently, it’s still nearly double what it was before the pandemic entered the picture.
Personally, I think that’s quite impressive. Transaction volumes may continue to decline in the short term. However, it’s clear the company is successfully attracting a meaningful number of new clients to its platform, despite ‘commission-free’ alternatives being available today. With that in mind, I think the recent fall is, in fact, a buying opportunity for my portfolio.
