Morningstar | MSCI's Subscription Revenue Growth More Than Offset Asset-Based Fee Weakness in the First Quarter
Wide-moat rated MSCI posted a reasonable first quarter, as it continues to extract value from subscriptions to its indexes and analytics. MSCI announced that Linda Huber, Moody’s former CFO, will become its acting CFO on May 6. Adjusted earnings per share grew 18.3% year over year and was flat sequentially. We will maintain our fair value estimate of $135 per share.MSCI continues to effectively monetize its valuable intellectual property. Subscription revenue grew 8.3% year over year, largely due to pricing increases and new subscriptions. We expect that the continued secular shift into passive investing will allow the company to sustain growth. MSCI’s subscription retention rate was an impressive 95.2% this quarter. We anticipate that MSCI’s switching costs and intangible assets will allow it to increase pricing while keeping subscription retention high.
MSCI’s asset-based fees continue to face headwinds, declining 4.3% year over year due to AUM declines and an unfavorable mix shift. We think that MSCI has become more reliant on asset-based fees in recent years, which makes the company more susceptible to market risks.
Management indicated that it is likely going to be on the higher end of its expense guidance due to investment in its ESG products, fixed income products, and technology capabilities. We think that these investments make sense and that they will likely help the company maintain its wide moat.
MSCI is a provider of decision support tools and services for the global investment community. The company's segments are: Index, in which Clients use the company's indexes in various areas of the investment process, including index-linked product creation; Analytics, which provides risk management, performance attribution and portfolio management content, applications and services; Environmental, Social and Governance (ESG), which helps institutional investors understand how ESG considerations can impact the long-term risk and reward of their portfolio and individual security-level investments; and Real Estate, which includes research, reporting, market data and benchmarking offerings.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
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