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Behind T. Rowe Price’s Net Revenue

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Components

T. Rowe Price’s (TROW) net revenue comprises three components: investment advisory fees, distribution and servicing fees, and administrative fees. The company’s net revenue rose 13.5% to $4.8 billion in 2017 from $4.2 billion in 2016.

Between 2016 and 2017, the company’s investment advisory fees rose 15% from $3.7 billion to $4.3 billion, due to its average assets under management rising 16.8%. T. Rowe Price’s investment advisory fees rose to $1.2 billion in 4Q17 from $966.8 million in 4Q16.

Whereas T. Rowe Price has a last-12-month enterprise-value-to-revenue ratio of 5.5x, peers (XLF) BlackRock (BLK), Financial Engines (FNGN), and Franklin Resources (BEN) have ratios of 7.3x, 4.0x, and 2.5x, respectively.

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Other two components

T. Rowe Price’s administrative fees rose to $352.5 million in 2016 from $358.3 million in 2017, mainly because of administrative servicing activities for the company’s US mutual funds and investors. Administrative fees rose to $92.1 million in 4Q17 from $88.9 million in 4Q16.

The company’s distribution and servicing fees rose to $147 million in 2017 from $141.7 million in 2016. In the next article, we’ll look at T. Rowe Price’s operating expenses.

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