Ares (ARES)

Alternative asset manager Ares Management (NYSE:ARES) missed Wall Street’s revenue expectations in Q4 CY2025, but sales rose 22% year on year to $1.5 billion. Its non-GAAP profit of $1.45 per share was 14% below analysts’ consensus estimates.

Company Overview

With roots in the leveraged finance group of Apollo Management, Ares Management (NYSE:ARES) is an alternative investment firm that manages private equity, credit, real estate, and infrastructure assets for institutional and high-net-worth clients.

Asset management firms oversee investment portfolios for institutions and individuals. The industry benefits from the growing global wealth pool, retirement savings needs, and expansion into alternative investments (private equity, real estate, etc.). However, firms face significant pressure from the shift to lower-cost passive investment products, regulatory requirements for fee transparency, and increasing technology costs to stay competitive in portfolio management and client service.

Ares Management competes with other alternative asset managers including Blackstone (NYSE:BX), KKR (NYSE:KKR), Apollo Global Management (NYSE:APO), The Carlyle Group (NASDAQ:CG), and Brookfield Asset Management (NYSE:BAM).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Ares grew its revenue at an excellent 21.3% compounded annual growth rate. Its growth surpassed the average financials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Ares’s annualized revenue growth of 20.3% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Ares generated an excellent 22% year-on-year revenue growth rate, but its $1.5 billion of revenue fell short of Wall Street’s high expectations.

Assessing topline trends is important, but the profitability of this growth matters for the bottom line. For asset managers, we look at fee-related earnings, which is profits generated from the core fee-based business, excluding more volatile components like performance fees (carry) and investment income. This is essentially the recurring profits of the business.

Ares’s five-year annual fee-related earnings growth of 32.6% was elite and topped its 25.4% five-year management fee growth. Roughly speaking, this means Ares became more efficient in its core operations.

As you’ve seen throughout this report, we supplement with a two-year look because a five-year view may miss recent changes in the business. Over this period, Ares’s fee-related earnings grew by an exceptional 23.5% annually, faster than its growth in management fees. This data implies that the change in AUM-related revenue outpaced the operating expenses associated with managing that AUM.

In Q4, Ares’s fee-related earnings were $527.7 million, beating analysts’ expectations by 2.3%. These results represent 33.2% year-on-year growth.

Asset managers report ANI per share, which stands for adjusted net income per share. Make no mistake, this is essentially just the adjusted EPS that many other companies across various industries report.

This metric filters out the noise of investment mark-to-market changes and one-time charges to show true operational performance. The per-share calculation also captures the effect of capital allocation decisions like buybacks or new share offerings on shareholder value.

Ares’s 20.7% annualized ANI per share growth over the past five years was spectacular but underperformed its 32.6% fee-related earnings growth. It also diluted shareholders across this stretch, a headwind for its results.

On a two-year basis, Ares’s annualized ANI per share growth decelerated to 14.2%. While this performance was good on an absolute level, it lagged its fee-related earnings growth over the same period. We note the company continued diluting shareholders during this timeframe, suppressing its ANI per share.

In Q4, Ares reported ANI per share of $1.45, up from $1.23 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term ANI per share growth than short-term movements.

You may wonder when we will analyze book value and return on equity (ROE) since Ares is a financials company. We pay less attention to these metrics for asset managers because they are not great measures of business quality.

Asset managers are fee-based, capital light firms that manage client capital rather than their own, so they are not balance sheet businesses. Additionally, book value fails to capture the value of brands, investment track records, and other intangibles, thus understating intrinsic value, while ROE can look artificially high due to the relatively smaller bases of equity capital needed to operate the business compared to banks and insurers.

Ares reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter.

Given the company has no debt, leverage is not an issue here.

It was encouraging to see Ares beat analysts’ fee-related earnings expectations this quarter. We were also happy its AUM narrowly outperformed Wall Street’s estimates. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.9% to $133.25 immediately following the results.

When considering an investment in Ares, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Ares is truly a cream-of-the-crop financials company. For starters, its revenue growth was impressive over the last five years and is expected to accelerate over the next 12 months. On top of that, its expanding fee-related earnings shows the asset management business is generating more profits, and its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

Ares’s P/E ratio based on the next 12 months is 20.9x. Analyzing the financials landscape today, Ares’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $194.63 on the company (compared to the current share price of $133.25), implying they see 46.1% upside in buying Ares in the short term.