Investment research report for MSCI

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

MSCI Inc. is a leading provider of investment decision support tools, including indexes, analytics, and data services for institutional investors worldwide. The company operates through four segments: Index, Analytics, ESG and Climate, and All Other Private Assets. MSCI’s products and services are used by asset managers, banks, hedge funds, and pension funds to construct portfolios, measure and manage risk, and analyze performance.

Growth Opportunities and Competitive Advantages

  1. Secular Growth Drivers: MSCI is well-positioned to capitalize on major industry trends, such as the rise of passive investing, the increasing demand for ESG and climate data/analytics, and the growth of private capital markets. These trends provide significant growth opportunities across the company’s product lines.

  2. Diversified and Recurring Revenue Streams: MSCI’s revenue model is diversified across segments and client types, with a high proportion of recurring subscription-based revenues, providing stability and predictability.

  3. Strong Brand and Market Position: MSCI has established itself as a trusted and leading provider of investment decision support tools, with a strong brand reputation and deep client relationships.

Financial Strength and Capital Allocation

  1. Consistent Revenue and Profit Growth: MSCI has demonstrated a track record of consistent revenue and profit growth, driven by robust demand for its products and services, as well as successful product innovation and strategic acquisitions.

  2. Strong Cash Flow Generation: The company generates strong cash flows, providing financial flexibility to fund growth initiatives, strategic acquisitions, and shareholder returns.

  3. Disciplined Capital Allocation: MSCI maintains a balanced approach to capital allocation, investing in organic growth initiatives and strategic acquisitions, while also returning capital to shareholders through share repurchases and dividends.

Risks and Considerations

  1. Valuation Concerns: MSCI’s stock trades at premium valuations, which could limit further upside if growth expectations are not met.

  2. Competitive Landscape: While MSCI has a strong market position, it faces intense competition from larger and diversified firms in the financial data and analytics space, as well as potential disruption from new technologies or players.

  3. Regulatory and Geopolitical Risks: Changes in regulations around indexing, ESG investing, or geopolitical tensions could impact MSCI’s operations and growth prospects.

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Valuation Analysis

PE ratio

  • Low: 23.435786419891972
  • Base: 43.08701714823802
  • High: 62.73824787658407

PB ratio

  • Low: -265.1755822040614
  • Base: -100.1702348415339
  • High: 64.83511252099362

EPS Growth

  • Low: 20.11%
  • Med: 23.97%
  • High: 26.98%

DPS Growth

  • Low: 22.56%
  • Med: 24.62%
  • High: 26.41%

FCF Growth

  • Low: 13.75%
  • Med: 17.60%
  • High: 20.57%

Value forecast by FCF

  • Low: 497.49
  • Med: 630.87
  • High: 758.23

Value forecast by EPS

  • Low: 737.14
  • Med: 936.10
  • High: 1127.02

Value forecast by DPS

  • Low: 857.77
  • Med: 974.15
  • High: 1087.89

The current price for MSCI is $476.52.

Price target for 18 months from now

  • Low: 486.08
  • Med: 505.73
  • High: 524.57

Price target for 4 years from now

  • Low: 502.01
  • Med: 554.40
  • High: 604.66

Price target for 10 years from now

  • Low: 540.25
  • Med: 671.23
  • High: 796.86

The net present value multiplier discounted at 10.22% gives the value of the stock as:
– Low: 1.13
– Med: 1.41
– High: 1.67

The upside/downside ratio is 2.08, and our rating is Buy.

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Industry and Competitors Analysis

MSCI Inc. and Competitors

Based on the information provided, MSCI Inc. operates in the financial data and stock exchange industry. Its main competitors appear to be:

  1. Moody’s Corporation (MCO)
  2. Intercontinental Exchange, Inc. (ICE)
  3. CME Group Inc. (CME)
  4. Nasdaq, Inc. (NDAQ)
  5. S&P Global Inc. (SPGI)
  6. Morningstar, Inc. (MORN)

These companies provide similar services such as investment research, data analytics, ratings, indexes, and risk management solutions for financial markets and institutions.

Competitive Positioning

In terms of competitive positioning, MSCI seems to be a significant player in the industry with a market capitalization of around $39 billion and over 5,800 employees. However, some of its competitors like S&P Global, Moody’s, and Intercontinental Exchange are larger in terms of market cap and revenue.

Key Segments and Focus Areas

MSCI’s key segments include Index, Analytics, ESG and Climate, and Private Assets. It has a strong focus on providing investment decision support tools, indexes, ESG and climate data/analytics, and solutions for private capital markets.

Competitive Challenges

While MSCI appears to be a well-established player, it faces intense competition from larger and diversified firms in the financial data and analytics space. Its competitive positioning likely depends on its ability to differentiate its offerings, maintain strong client relationships, and continue innovating in areas like ESG and private markets.

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Chart of Competitors

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Financial Analysis

Financial Strength

MSCI has maintained a relatively strong return on equity (ROE) and return on assets (ROA) over the past few years, indicating efficient use of shareholders’ equity and assets to generate profits. However, these metrics have declined somewhat in recent quarters.

The company has a healthy interest coverage ratio, suggesting it can comfortably service its debt obligations. The current ratio is around 1, which is a bit low but not necessarily a major concern.

Potential for Growth

Revenue growth has been modest but positive in recent years, averaging around 2-5% annually. Analyst estimates project MSCI’s revenue to grow at a compound annual rate of around 7-8% over the next 5 years, indicating expectations for accelerating top-line expansion.

The company operates in the investment decision support tools industry, which could benefit from increasing demand for data analytics and ESG/climate risk assessment services.

Competitive Advantage

MSCI appears to have a strong brand and market position in providing indexes, analytics, and ESG/climate data to institutional investors. The company’s diverse product offerings across indexes, analytics, ESG, and private assets could provide a competitive edge.

Quality of Management

Management has maintained a relatively stable payout ratio and dividend growth over time, suggesting a focus on shareholder returns. However, the declining ROE and ROA trends could raise some questions about capital allocation efficiency.

Shareholder Friendliness

MSCI has consistently paid dividends, though the yield is relatively low at around 1-3%. The company has regularly repurchased shares, which can enhance shareholder value.

Valuation

The price-to-earnings (P/E) ratio has fluctuated significantly but is currently around 27x, which could be considered moderately expensive relative to historical levels. Analyst EPS estimates imply a forward P/E of around 18-20x for 2025-2028, which may be more reasonable if growth projections are achieved.

In summary, MSCI appears to have a reasonably strong financial position, growth prospects in its industry, and some competitive advantages. However, recent profitability trends, shareholder returns, and valuation multiples warrant close monitoring. Effective capital allocation and execution on growth plans will likely be key factors influencing the company’s future performance.

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Chart of Key Per Share Metrics

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Resilient and diversified business model

MSCI has a resilient, all-weather business model with a high proportion of recurring revenue from subscriptions and index-linked fees. This diversification across products, asset classes, and client segments helps the company navigate market cycles effectively.

Secular growth opportunities

MSCI is well-positioned to capitalize on major secular trends in the investment industry, such as the rise of ESG and climate investing, the growth of private assets, and the increasing demand for customization and portfolio analytics. The company is making significant investments in these high-growth areas.

Focus on innovation and data capabilities

MSCI is continuously enhancing its data and technology capabilities, leveraging cloud computing, AI, and partnerships to improve data accessibility, analytics, and client experience. Innovation is a key strategic priority.

Expansion into new client segments

While maintaining its strong foothold with traditional asset managers and owners, MSCI is successfully expanding into newer client segments like wealth managers, hedge funds, and corporates, diversifying its revenue streams.

Disciplined capital allocation

MSCI maintains a balanced approach to capital allocation, investing in organic growth initiatives while also pursuing strategic bolt-on acquisitions and returning excess capital to shareholders through share buybacks and dividends.

Financial resilience and operational efficiency

MSCI has demonstrated the ability to proactively manage expenses, prioritize investments, and protect profitability during challenging market conditions, ensuring long-term financial resilience.

Leadership in ESG and climate solutions

MSCI is positioning itself as a leader in providing ESG and climate-related data, tools, and solutions to investors, capitalizing on the global transition to a low-carbon economy and the increasing regulatory focus on sustainability.

Overall, MSCI’s diversified business model, focus on innovation and high-growth areas, disciplined capital allocation, and leadership in ESG and climate solutions make it an attractive long-term investment opportunity in the financial data and analytics space.

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Financial Statements Multi Year

Strong and Consistent Revenue Growth

MSCI Inc.’s financial statements showcase strong and consistent revenue growth across all major segments – Index, Analytics, ESG and Climate, and All Other Private Assets. Recurring subscription revenues, which make up the majority of total revenues, have been growing at a healthy pace, indicating robust demand and high client retention.

Diversified Revenue Streams

MSCI’s revenue streams are diversified, with recurring subscription revenues providing stability, asset-based fees linked to market performance, and growth opportunities in areas like ESG, Climate, and Private Assets.

Consistent Margin Expansion and Profitability Improvement

MSCI has demonstrated consistent margin expansion and profitability improvement, reflecting the company’s ability to leverage its operating model and scale efficiently as revenues grow.

Strong Cash Flow Generation

MSCI’s strong cash flow generation provides ample liquidity to fund growth initiatives, capital expenditures, strategic acquisitions, and shareholder returns.

Disciplined Capital Allocation

MSCI’s capital allocation is disciplined, with investments in product innovation, strategic acquisitions to enhance capabilities, and returning capital to shareholders through share buybacks and dividends.

Robust Balance Sheet and Financial Flexibility

MSCI maintains a robust balance sheet and financial flexibility, with a healthy cash position and manageable debt levels.

High Client Retention Rates and Diversified Client Base

MSCI’s high client retention rates and diversified client base reduce concentration risk, further strengthening the company’s financial position.

Overall, MSCI’s financial performance demonstrates the strength of its business model, its leadership position across various segments, and its ability to drive consistent growth and shareholder value creation over the long term.

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Insider Trading Analysis

Long-term Patterns

The CEO (Henry A. Fernandez) and CFO (CD Baer Pettit) have been consistently awarded a large number of shares through equity compensation plans over the years. This suggests they have significant ownership stakes in the company.

There have been several large block sales by the major shareholder, ValueAct Holdings, L.P., reducing their ownership from over 9 million shares to under 2 million shares over the 2015-2016 period.

Other executives like Kathleen A. Winters, Peter J. Zangari, and Scott A. Crum have also received substantial equity awards and have been selling shares periodically.

Recent Patterns

In 2024, the CEO and CFO continued to receive large equity awards, with the CEO receiving over 130,000 shares and the CFO receiving over 60,000 shares.

Several other executives like Robert J. Gutowski, Andrew C. Wiechmann, and Jennifer H. Mak also received equity awards in 2024.

The CEO, CFO, and other executives have been periodically selling shares, likely for diversification and liquidity purposes, but they still maintain significant ownership stakes.

Implications

The consistent equity awards to the CEO and CFO, as well as other key executives, suggest the company believes in aligning their interests with shareholders through equity compensation.

The large block sales by the major shareholder, ValueAct Holdings, L.P., indicate they may be reducing their position, potentially signaling a shift in the company’s strategic direction or ownership structure.

The ongoing share sales by executives, while substantial in some cases, do not appear to be indicative of any major concerns, as the executives still maintain significant ownership positions.

Overall, the insider trading patterns suggest the company has a strong focus on equity-based compensation to align the interests of management with shareholders, and the recent transactions do not raise any major red flags for long-term or short-term investors.

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Management Compensation Benchmark Analysis

Alignment with Shareholder Value

The compensation structure for MSCI’s executives appears to be heavily weighted towards long-term incentives like stock awards and incentive plan compensation, rather than fixed salary. This suggests the compensation is designed to align the executives’ interests with creating long-term shareholder value.

Low Salary Portion

The base salary portion of the total compensation for MSCI’s executives is relatively low, ranging from around 7% to 20% across the reported years and executives. This indicates that a significant portion of the compensation is tied to variable, performance-based elements.

No Bonuses

MSCI does not appear to provide annual cash bonuses to its executives. Instead, the variable compensation is delivered through stock awards and incentive plan payouts, further emphasizing the long-term focus.

Consistency Across Executives

The compensation structure and the low base salary portion is consistent across the different MSCI executives reported, suggesting a well-designed and aligned compensation program.

Compared to the other companies examined (MCO, ICE, CME, NDAQ, SPGI, MORN), MSCI’s executive compensation appears to be more heavily weighted towards long-term, equity-based incentives, with a lower base salary component. This is generally considered a best practice for aligning executive interests with those of long-term shareholders.

Overall, the executive compensation details for MSCI indicate that the company has implemented a compensation program that is well-designed to incentivize and reward its executives for delivering long-term shareholder value, which should be appealing to long-term investors.

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Proxy Statement Analysis

Pay mix and incentive structure

Examine how the compensation is structured between fixed pay (base salary) and variable/at-risk pay tied to performance goals. A higher proportion of compensation in equity-based long-term incentives can better align executives with shareholder interests.

Performance metrics

Evaluate the specific financial, operational, and strategic metrics used for determining annual and long-term incentive payouts. Metrics like revenue growth, profitability, return on invested capital, and total shareholder return could signal alignment with long-term value creation.

Challenging yet achievable targets

Assess whether the performance targets set for incentive payouts are rigorous enough to motivate and reward exceptional performance, while still being realistically achievable.

Shareholder alignment mechanisms

Look for provisions that further align executives’ interests with shareholders, such as significant stock ownership requirements, holding periods for vested equity, and clawback policies.

Pay benchmarking

Review how MSCI’s executive pay levels and practices compare to peers and relevant market data to ensure competitiveness while avoiding excessive compensation.

Board independence and oversight

Evaluate the independence and effectiveness of the compensation committee in designing and administering the executive pay program.

By carefully analyzing these aspects of MSCI’s proxy disclosures, a long-term investor can gauge whether the executive compensation structure provides appropriate incentives for sustainable long-term performance and shareholder value creation.

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News Analysis for MSCI Inc

Earnings Performance

MSCI has consistently beaten earnings estimates in recent quarters, driven by growth in recurring subscription revenues. Its strong earnings performance could signal continued profitability and potential for dividend increases.

Business Model Strength

MSCI’s business model as a leading provider of investment decision support tools, indexes, and analytics is seen as resilient and well-positioned to benefit from trends like passive investing and ESG investing.

ESG and Climate Focus

MSCI is expanding its offerings in ESG and climate risk analytics, which could drive future growth as demand for sustainable investing solutions increases.

Acquisitions and Partnerships

MSCI has made strategic acquisitions and formed partnerships to expand its capabilities, such as the acquisition of Burgiss Group and a partnership with Microsoft.

Valuation Concerns

While MSCI’s business is highly regarded, some analysts have raised concerns about its rich valuation, suggesting potential for limited upside in the near term.

Competitive Positioning

MSCI is seen as a leader in its industry, but faces competition from other index providers and financial data firms.

Overall, the sentiment seems positive regarding MSCI’s long-term growth prospects, driven by its strong business model, focus on innovative products, and exposure to secular trends like passive and ESG investing. However, valuation concerns could limit near-term upside potential.

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Technical Indicators Analysis

Next Week Trading

Based on the technical indicators, the next week’s trading for MSCI is likely to be volatile. The 20-day TEMA is currently below the current price, indicating a potential bearish trend in the short term. The 10-day RSI is in the neutral range, suggesting the stock is neither overbought nor oversold. The ADX is below 25, indicating a weak trend direction. These factors suggest that the stock may experience some price fluctuations in the next week, and traders should be cautious and monitor the market closely.

Resistance and Support Levels

The 20-day SMA and 50-day SMA are currently above the current price, indicating potential resistance levels at around $490 and $492, respectively. The 200-day SMA is at $526, which could act as a strong resistance level. On the support side, the current price is above the 20-day, 50-day, and 200-day SMAs, suggesting these levels could provide support if the stock price declines.

Short Term Investor

For a short-term investor, the current technical indicators suggest a cautious approach. The weak trend direction and the stock’s position relative to the moving averages indicate a potential for price fluctuations in the near term. Short-term investors may want to closely monitor the stock’s performance and be prepared to adjust their positions accordingly.

Long Term Investor

For a long-term investor, the technical indicators present a more favorable outlook. The stock is currently trading above its 200-day SMA, which is a positive sign for the long-term trend. Additionally, the 50-day SMA is above the 200-day SMA, indicating a bullish long-term trend. Long-term investors may consider this stock as a potential investment opportunity, but should still monitor the market conditions and the company’s fundamentals.

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Strong Revenue Growth

MSCI’s total operating revenues grew 12.5% year-over-year, driven by robust growth across all its business segments – Index (11.4%), Analytics (6.9%), ESG and Climate (26.0%), and All Other Private Assets (23.1%).

Recurring Subscription Revenues

Recurring subscription revenues, which make up 74.0% of total revenues, grew 12.8% year-over-year, reflecting strong demand for MSCI’s products and services. This highlights the recurring and predictable nature of MSCI’s business model.

Asset-based Fees

Asset-based fees, which contribute 22.0% of total revenues, grew 5.6% year-over-year, driven by growth in revenues from ETFs and non-ETF indexed funds linked to MSCI indexes, partially offset by a decrease in revenues from exchange-traded futures and options contracts.

Profitability Expansion

Adjusted EBITDA margin expanded to 60.2% from 59.1% in the prior year, reflecting MSCI’s ability to leverage its operating expenses while driving top-line growth.

Strong Cash Flow Generation

MSCI generated $1.24 billion in net cash from operating activities, up from $1.10 billion in the prior year, demonstrating the company’s ability to convert earnings into cash.

Disciplined Capital Allocation

MSCI returned $504 million to shareholders through share repurchases and $441 million through dividends, while also investing $727 million in the acquisition of Burgiss to expand its private assets capabilities.

Robust Balance Sheet

MSCI ended the year with $461.7 million in cash and cash equivalents, providing financial flexibility to fund future growth initiatives and strategic investments.

Overall, MSCI’s financial performance reflects the strength of its business model, the growing demand for its products and services, and its ability to execute on its strategic priorities while maintaining a disciplined approach to capital allocation.

Financial Statements Annual 2023 Q2

Recurring Subscription Revenues

Recurring subscription revenues grew 16.4% year-over-year, driven by strong growth across the Index, ESG and Climate, and All Other Private Assets segments.

Asset-based Fees

Asset-based fees declined 4.7% year-over-year, primarily due to lower AUM in ETFs and non-ETF indexed funds linked to MSCI indexes, partially offset by higher exchange traded futures and options volume.

Largest Client

The company’s largest client, BlackRock, accounted for 10.3% of consolidated operating revenues in 2022, down from 12.7% in 2021.

Retention Rate

The company’s Retention Rate for the full year 2022 was 95.2%, compared to 94.7% in 2021, reflecting strong client retention across the business.

Adjusted EBITDA Margin

Adjusted EBITDA margin increased to 59.1% in 2022 from 58.6% in 2021, reflecting higher revenue growth compared to the growth in Adjusted EBITDA expenses.

Cash and Debt Position

The company had $993.6 million in cash and cash equivalents as of December 31, 2022 and $4.65 billion in total debt, providing financial flexibility to fund operations, investments and acquisitions.

Stock Repurchase Program

The company’s Board of Directors approved a new $10 billion stock repurchase program in 2022, demonstrating confidence in the business and commitment to returning capital to shareholders.

Overall, the results show MSCI continuing to deliver strong revenue growth, particularly in its recurring subscription business, while maintaining high client retention and profitability. The company appears well-positioned to execute on its strategic initiatives.

Financial Statements Annual 2022 Q2

Recurring subscription revenues and asset-based fees

Recurring subscription revenues and asset-based fees are the primary drivers of MSCI’s business, accounting for 69.7% and 27.1% of total revenues respectively in 2021. The company has seen strong growth in these revenue streams, with recurring subscriptions up 14.3% and asset-based fees up 38.6% in 2021 compared to 2020.

Index segment

The company’s Index segment is its largest, generating 61.3% of total revenues in 2021. This segment saw 23.1% revenue growth driven by strong performance in both recurring subscriptions and asset-based fees.

ESG and Climate offerings

MSCI has been expanding its ESG and Climate offerings, which saw 49.2% revenue growth in 2021. This segment now accounts for 8.1% of total revenues.

Real Estate data and analytics capabilities

The company completed the acquisition of Real Capital Analytics in 2021, which expanded its real estate data and analytics capabilities. The All Other Private Assets segment, which includes Real Estate, grew 51.3% in 2021.

Profitability and balance sheet

MSCI has maintained strong profitability, with an operating margin of 52.5% in 2021. Adjusted EBITDA margin was 58.6%, up from 57.3% in 2020, reflecting the scalability of the business model. The company has a strong balance sheet, with $1.42 billion in cash and cash equivalents as of December 31, 2021. It has also been actively managing its capital structure, issuing new senior notes and redeeming existing debt.

Capital return to shareholders

MSCI continues to return capital to shareholders, with $198.4 million in share repurchases in 2021 and a quarterly dividend of $1.04 per share declared in January 2022.

Overall, MSCI’s financial performance demonstrates the strength of its recurring revenue model, growth in key product areas, and disciplined capital allocation – positioning the company well for continued success.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Strong Revenue Growth

MSCI’s total operating revenues grew 14.8% year-over-year, driven by robust growth across all revenue types – recurring subscriptions (15.2% growth), asset-based fees (12.9% growth), and non-recurring revenues (20.3% growth). This indicates the company is successfully expanding its client base and product offerings.

Diversified Revenue Streams

MSCI has a well-diversified revenue mix, with recurring subscriptions accounting for 75.5% of total revenues, asset-based fees at 22.1%, and non-recurring revenues at 2.4%. This provides stability and predictability to the company’s revenue profile.

Segment Performance

All of MSCI’s reportable segments – Index, Analytics, ESG and Climate, and All Other Private Assets – delivered strong revenue growth, showcasing the breadth and depth of the company’s product portfolio. The Index segment, which is the largest contributor, grew 10.2%, while the high-growth segments of ESG and Climate, and All Other Private Assets grew 16.1% and 66.0% respectively.

Margin Expansion

Despite the higher operating expenses, MSCI’s Adjusted EBITDA margin remained strong at 56.4%, only a slight decline from 58.2% in the prior year period. This demonstrates the company’s ability to effectively manage costs while investing in growth initiatives.

Robust Cash Flows and Liquidity

MSCI generated $300.1 million in operating cash flow during the quarter, providing ample liquidity to fund its operations, capital expenditures, and strategic acquisitions. The company’s cash and cash equivalents balance of $519.3 million, along with available credit facilities, give it financial flexibility to pursue growth opportunities.

Acquisition Integration

The successful integration of recent acquisitions, such as Burgiss, Trove, and Fabric, is expected to further strengthen MSCI’s product capabilities and market position in the private assets, ESG, and analytics domains, driving long-term value creation.

Overall, MSCI’s strong financial performance, diversified revenue streams, margin resilience, and strategic acquisitions position the company well for continued growth and value creation for long-term investors.

Financial Statements Quarterly 2024 Q1

Strong revenue growth

Total operating revenues increased 11.6% for the three months ended September 30, 2023 and 10.0% for the nine months ended September 30, 2023. This was driven by robust growth across all major product segments – Index, Analytics, ESG and Climate, and All Other Private Assets.

Recurring revenue expansion

Recurring subscription revenues, which make up the majority of total revenues, grew 10.7% and 11.3% for the three and nine month periods respectively. This indicates strong client retention and expansion.

Healthy profitability

Adjusted EBITDA margin remained strong at 61.8% for the three months and 60.3% for the nine months, reflecting the company’s ability to scale its operations efficiently.

Solid cash flow generation

Net cash provided by operating activities was $847 million for the nine months, supporting the company’s ability to fund growth initiatives, capital expenditures, and shareholder returns.

Balanced capital allocation

The company continues to invest in the business through R&D and strategic acquisitions like Burgiss, while also returning capital to shareholders through dividends and share repurchases.

Diversified revenue streams

The company has a well-diversified revenue base across its major product segments and geographies, reducing concentration risk.

Strong client relationships

High Retention Rates across the segments, ranging from 91.3% to 96.2%, demonstrate the stickiness of the company’s products and services.

Overall, the financial statements indicate MSCI is executing well on its growth strategy, maintaining its leadership position, and generating strong returns for long-term investors.

Financial Statements Quarterly 2023 Q4

Strong revenue growth

MSCI’s total operating revenues grew 12.6% and 9.1% for the three and six months ended June 30, 2023 respectively, driven by robust growth across all its major product segments – Index, Analytics, ESG and Climate, and All Other Private Assets.

Recurring revenue expansion

Recurring subscription revenues, which make up the majority of MSCI’s revenues, grew 12.0% and 11.7% for the three and six months periods, indicating strong client retention and new sales. The company’s Retention Rate remained high at 95.5% and 95.4% for the respective periods.

Healthy profitability

MSCI’s Adjusted EBITDA margin expanded to 60.7% and 59.5% for the three and six months periods, reflecting the company’s ability to leverage its operating model and scale. Net income also grew 17.2% and 10.6% for the respective periods.

Efficient capital allocation

MSCI continued to return capital to shareholders through $485 million in share repurchases during the first half of 2023. The company also maintained a strong balance sheet with $792 million in cash and cash equivalents as of June 30, 2023.

Diversified revenue streams

While MSCI’s largest client BlackRock accounted for 10.0% of consolidated revenues, the company has a diversified client base across its product segments, reducing concentration risk.

Ongoing investment in growth

MSCI’s research and development expenses grew 26.0% and 17.7% for the three and six months periods, reflecting the company’s commitment to innovation and new product development to drive future growth.

Overall, MSCI’s financial performance demonstrates its ability to deliver consistent revenue and profit growth, maintain high client retention, and efficiently allocate capital – all of which are positive indicators for long-term investors.

Financial Statements Quarterly 2023 Q3

Strong revenue growth

Total operating revenues increased 5.8% year-over-year, driven by 14.4% growth in recurring subscription revenues. This was partially offset by an 8.2% decline in asset-based fees.

Profitability improvement

Adjusted EBITDA increased 8.2% year-over-year, with the Adjusted EBITDA margin expanding from 56.9% to 58.2%. This was driven by revenue growth and disciplined expense management.

Segment performance

  • Index segment revenues grew 2.6%, with 12.7% growth in recurring subscriptions offsetting an 8.2% decline in asset-based fees.
  • Analytics segment revenues grew 5.2%, driven by 4.9% growth in recurring subscriptions.
  • ESG and Climate segment revenues grew 28.9%, with 30.0% growth in recurring subscriptions.
  • All Other Private Assets segment revenues grew 3.6%.

Strong balance sheet and liquidity

The company had $1.08 billion in cash and cash equivalents as of March 31, 2023. Net debt was $3.56 billion, with a Consolidated Leverage Ratio of 3.00x, well within the covenant limit.

Shareholder returns

The company paid $112 million in dividends during the quarter and had $13.04 billion remaining under its share repurchase authorization as of March 31, 2023.

Overall, the results demonstrate MSCI’s ability to drive strong revenue and profit growth across its key business segments, while maintaining a healthy financial position to support future investments and shareholder returns. The recurring nature of the subscription-based business model and the company’s leadership in ESG and climate-related products are particularly noteworthy.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q1

Resilient, All-Weather Business Model

MSCI has a resilient, all-weather business model that continues to generate consistently strong performance across its product areas and client segments, despite cyclical pressures.

MSCI is well-positioned to capitalize on important secular trends in the investment landscape, such as the rising demand for portfolio customization and the growth of private asset allocations. The company is investing in expanding its capabilities in these areas.

Operational Efficiency and Productivity

MSCI is focused on driving operational efficiency and productivity to fund incremental investments in growth areas like customization, climate/ESG, and private assets. The company is leveraging AI and technology to enhance its offerings and client experience.

Cross-Selling Ability

MSCI has a demonstrated track record of growing with its existing client base, with half of its index client base subscribing to at least two or more modules. This cross-selling ability is a key strength.

Cyclical Headwinds and Long-Term Opportunities

While the company is seeing some cyclical headwinds, particularly in the ESG and Climate segment, MSCI remains optimistic about the long-term opportunities in this space, driven by increasing regulation and client demand.

Capital Allocation Strategy

MSCI’s capital allocation strategy remains balanced, with a focus on organic investments, bolt-on acquisitions, and returning excess capital to shareholders through share buybacks and dividends.

Overall, MSCI appears to be well-positioned for long-term growth, with a diversified business model, strong client relationships, and a focus on innovation and operational efficiency. However, investors should be mindful of the potential for near-term cyclical pressures and their impact on the company’s performance.

Earnings Call Analysis 2023 Q4

Resilient Business Model

MSCI has a resilient business model underpinned by recurring revenue and mission-critical solutions, which positions it well in any operating environment.

Strategic Acquisitions

The company is focused on high-growth and high-potential investments while maintaining high profitability, as evidenced by its recent strategic acquisitions of Burgiss and Trove.

The Burgiss acquisition strengthens MSCI’s position in the private assets market, allowing it to provide greater transparency and clarity for investors across private and public assets.

The Trove acquisition enhances MSCI’s climate solutions, which are expected to play a significant role in helping institutional investors and companies understand and measure their progress towards net-zero emissions.

Interconnected Product Lines

MSCI’s product lines are increasingly interconnected, with the work in private assets reinforcing the work in climate and vice versa, creating synergies and growth opportunities.

Market Conditions

While the company is seeing some budget pressures and longer sales cycles in the Americas for ESG and Climate products, the engagement and retention rates remain strong, and MSCI believes in the long-term growth potential of these segments.

Capital Allocation

MSCI is focused on disciplined capital allocation, balancing organic investments, strategic acquisitions, and shareholder returns through dividends and share repurchases.

Financial Discipline

The company has demonstrated financial discipline and the ability to implement a “downturn playbook” to protect profitability during challenging market conditions, which is a positive sign for long-term investors.

Conclusion

Overall, MSCI appears to be well-positioned to capitalize on the growing demand for investment decision support tools, private asset transparency, and climate-related solutions, which are expected to be key drivers of long-term growth.

Earnings Call Analysis 2023 Q3

Strong Long-term Growth Opportunities in Indices

MSCI sees strong long-term growth opportunities in indices, driven by the continued adoption of index investing, the shift to algorithm-driven portfolio construction, and the rise in demand for sustainable and climate-focused investments.

Competitive Advantage of the “One MSCI Ecosystem”

The integration and interoperability of MSCI’s product lines, the “one MSCI ecosystem”, is a key competitive advantage that drives value and efficiency for clients.

Accelerating ESG and Climate Product Launches

MSCI is accelerating its ESG and Climate product launches to capitalize on strong client demand, driven by regulatory pressure and the view that ESG factors are fundamental investment risks and opportunities.

Financial Discipline and Capital Allocation

MSCI remains financially disciplined, focused on profitability, and committed to its capital allocation framework of opportunistic buybacks, dividend support, and strategic bolt-on acquisitions.

Positive Tailwind from Increasing ESG and Climate Regulation

MSCI sees the increasing regulation around ESG and Climate as a positive tailwind for its business, as it creates demand for more granular data and solutions to help clients comply.

Confidence in Long-term Secular Growth Drivers for ESG and Climate

While there have been some near-term cyclical impacts, MSCI remains confident in the long-term secular growth drivers for its ESG and Climate business.

Embracing Generative AI and Natural Language Processing

MSCI is embracing generative AI and natural language processing to enhance its data processing, audit, and quality mechanisms, as well as to improve the client experience.

Overall, MSCI appears well-positioned to capitalize on the major trends shaping the investment industry, with a focus on financial discipline, innovation, and delivering mission-critical solutions to its diverse client base.

Earnings Call Analysis 2023 Q2

Diversified and Resilient Business Model

MSCI has a diversified and resilient business model across product lines, asset classes, and client segments. This diversification helps the company navigate market cycles.

Strength in Core Subscription Business

While the current environment has led to some slowdown in sales, particularly in ESG and climate, MSCI’s core subscription business remains strong with 12% organic growth in the quarter. Retention rates also remain high, over 95%.

Long-term Growth Opportunities

MSCI sees significant long-term growth opportunities, especially in climate-related products and services. The company continues to invest in these areas despite near-term macro pressures.

Balancing Growth and Profitability

MSCI is focused on balancing growth investments with profitability, aiming to drive strong EPS growth over the long-term. The company has levers to adjust expenses if needed, but is also poised to accelerate investments if market conditions improve.

Exploring Bolt-on Acquisitions

The company is actively exploring potential bolt-on acquisitions at more attractive valuations, particularly in strategic areas like ESG, climate, and data/analytics.

Guidance and Market Insights

While MSCI provides guidance based on assumptions about market conditions, the management team acknowledges they do not have superior insights compared to the market. The guidance is more to help manage the business proactively.

Overall, MSCI appears to be navigating the current environment well, maintaining the strength of its core business while positioning for long-term growth opportunities. The diversified model and disciplined approach to investments and expenses are key strengths.

Earnings Call Analysis 2023 Q1

Diversified, Resilient Business Model

MSCI has a diversified, resilient business model with over 97% of revenue coming from recurring sources like subscriptions, AUM-linked fees, and derivatives transactions. This has allowed the company to thrive despite market volatility.

Long-Term Growth Opportunities

MSCI sees significant long-term growth opportunities across its product lines, including index investing, ESG/climate investing, and private assets. The company is making strategic investments in these high-growth areas.

Enhanced Data and Technology Capabilities

MSCI is focused on enhancing its data and technology capabilities through partnerships with Microsoft and Google Cloud. This is enabling the company to better collect, organize, and deliver actionable insights to clients.

Cautious Outlook, Optimistic Long-Term Prospects

While MSCI is cautious about near-term headwinds like reduced client budgets and longer sales cycles, the company remains optimistic about its long-term growth prospects given the secular trends driving demand for its solutions.

Disciplined Expense Management

MSCI is taking a disciplined approach to managing expenses, including selective headcount reductions, to preserve profitability and investment capacity during the current environment.

Active M&A Strategy

The company continues to be active on the M&A front, looking for opportunistic bolt-on acquisitions that can accelerate growth in strategic areas like private assets, climate, and ESG.

Overall, MSCI appears well-positioned as a long-term investment given its diversified business model, focus on high-growth secular trends, and commitment to investing for the future while maintaining financial discipline.

Earnings Call Analysis 2022 Q4

MSCI’s Resilient Business Model

MSCI’s business model has proven resilient and adaptable despite significant global economic and market headwinds. The company continues to deliver strong organic subscription growth and high retention rates across its key business segments.

Increased Demand for MSCI’s Solutions

The demand for MSCI’s mission-critical tools and solutions, particularly in areas like Index, Analytics, ESG, and Climate, has increased during periods of market volatility and uncertainty. Investors are relying more on MSCI’s data, models, and research to navigate choppy waters.

Long-Term Potential of ESG and Climate Franchises

MSCI remains bullish on the long-term potential of its ESG and Climate franchises, despite some near-term fluctuations in sales growth. The underlying drivers of ESG and sustainability investing continue to strengthen, and MSCI is positioning itself as a leader in providing climate solutions to the global finance industry.

Proactive Expense Management

MSCI is proactively managing its expenses through its “downturn playbook”, prioritizing investments in key growth areas while moderating the pace of hiring and spending in less critical areas. This allows the company to maintain financial discipline and protect profitability during the current market environment.

Diversified Business Model Provides Hedge

The company’s diversified client base, product portfolio, and geographic footprint provide a natural hedge against market and currency fluctuations, as evidenced by the offsetting impacts of FX movements on MSCI’s revenue and expenses.

Focus on Capital Allocation

MSCI continues to focus on capital allocation, balancing share repurchases and strategic bolt-on M&A, to drive long-term shareholder value. The company remains well-positioned to capitalize on opportunities that may arise during the current market volatility.

Overall, the key message is that MSCI’s business model and strategic positioning have enabled the company to navigate the challenging macroeconomic environment effectively, and the company remains well-placed to continue delivering long-term growth and value for investors.

Earnings Call Analysis 2022 Q3

MSCI Demonstrates Resilience and Growth Opportunities

MSCI has demonstrated resilience and an “all-weather” franchise during the current market volatility. Despite macroeconomic challenges, the company continues to see strong demand across most segments and geographies.

MSCI is proactively managing its expenses and capital allocation to protect profitability. The company is moderating the pace of hiring, identifying efficiencies in discretionary areas, and leveraging FX benefits to offset headwinds from lower asset-based fees. This suggests MSCI is focused on maintaining high margins.

The company sees significant growth opportunities in areas like ESG/Climate, Analytics, and Fixed Income. ESG/Climate in particular is a fast-growing part of the business, with 47% organic subscription run rate growth in Q2. MSCI is investing to capitalize on these secular trends.

MSCI is maintaining a strong balance sheet and liquidity position, which provides flexibility for opportunistic share repurchases and potential bolt-on acquisitions as private market valuations become more attractive.

While MSCI is not immune to broader market and economic conditions, the company’s diversified business model, high retention rates, and proactive management suggest it is well-positioned to navigate the current environment and continue delivering long-term growth.

Overall, MSCI appears to be an operationally and financially resilient company that is actively managing through near-term challenges while investing in high-growth areas to drive long-term value creation. The company’s transparency and focus on shareholder returns are also positive attributes for long-term investors.

Earnings Call Analysis 2022 Q2

MSCI’s Resilience and Growth Potential

MSCI has an “all-weather franchise” that has shown resilience and long-term growth potential despite the current market volatility and geopolitical uncertainty. The company continues to deliver strong financial results.

Scaling ESG and Climate Franchise

MSCI is well-positioned to succeed in the complex external environment, with continued momentum in scaling its ESG and Climate franchise. Demand for ESG and climate solutions remains resilient despite market turbulence.

Diversifying Client Base

MSCI is diversifying its client base beyond traditional asset managers and asset owners, seeing strong growth in newer segments like wealth managers, hedge funds, and corporates. This diversification supports long-term growth.

Investing in Data, Analytics, and Technology

MSCI is investing heavily in data, analytics, and technology to enhance its product offerings and maintain its position as an industry standard-setter, especially in ESG and climate solutions. These investments are driving growth.

Flexible Cost Structure and Resilient Business Model

While MSCI is monitoring the macro environment closely, the company has a flexible cost structure and is prepared to adjust its pace of investment if needed, without impacting key growth initiatives. The business model has proven resilient in past downturns.

Optimism for ESG and Climate Franchise Growth

MSCI remains optimistic about the long-term growth potential of its ESG and Climate franchise, which could potentially exceed the growth of the core ESG business over time as climate-related solutions gain traction.

Overall, MSCI appears to be executing well on its long-term growth strategy, diversifying its business, and investing in key growth areas despite the current market volatility. The company’s resilient business model and proactive approach to managing risks suggest it is well-positioned for continued success.

Earnings Call Analysis 2022 Q1

MSCI’s Key Insights for Long-Term Investors

MSCI is well-positioned to capitalize on major transformations in the investment industry, such as the global transition to a low-carbon economy and the growing focus on ESG and climate investing. The company is investing heavily in these areas to develop innovative products and solutions.

MSCI is seeing strong demand across its client segments, including wealth management, corporates, and its established base of asset managers and asset owners. The company is expanding its footprint with both new and existing clients.

MSCI is focused on enhancing its data and technology capabilities, including accelerating the transition of its products to the cloud and improving data accessibility across its product lines. This is a key strategic priority.

The company is taking a disciplined and systematic approach to capital allocation, prioritizing organic investments in ‘Triple Crown’ opportunities that leverage its established scale. MSCI is also open to selective bolt-on acquisitions, particularly in areas like fixed income and private assets.

MSCI is providing more transparency by reporting ESG and Climate as a standalone segment starting in Q1 2021. This reflects the importance of these growth areas for the company.

While MSCI is cautious about the near-term impact of COVID-19, the company remains deeply committed to investing in key growth initiatives and believes it is well-positioned to deliver sustained, significant top-line growth over the long term.

Overall, the key message is that MSCI is executing well on its strategic priorities and is poised to capitalize on major secular trends in the investment industry, which should drive long-term value creation for shareholders.

Earnings Call Analysis 2021 Q4

Enormous Demand Across MSCI’s Offerings

MSCI is seeing unprecedented demand across its product lines, including indices, ESG/climate, analytics, and private assets. The company is investing heavily to capitalize on these opportunities, particularly in areas like climate, ESG, custom indices, and private assets.

Climate and ESG as Key Growth Drivers

MSCI’s climate and ESG offerings are seeing explosive growth, with the combined ESG and climate segment growing 53% in revenue and 46% in run-rate. MSCI is positioning itself as a key player in the global transition to a net-zero economy, investing heavily in climate data, tools, and solutions.

Custom Indices and Investment Thesis Indices

There is strong demand from clients for custom-built indices, where they can choose their own universe, weightings, screening, etc. This is a key growth area for MSCI. MSCI’s “investment thesis” indices (e.g., ESG, climate, factors) are also seeing robust growth as the lines between active and passive investing continue to blur.

Balanced Approach to Investments and Margins

MSCI is taking an “upturn playbook” approach, aggressively investing in the business to capture the significant opportunities it sees. The company is balancing these investments with a focus on continued financial discipline and modest margin expansion over the long-term.

Inorganic Growth Opportunities

MSCI is actively pursuing partnerships and small bolt-on acquisitions, particularly in areas like private assets, to further enhance its capabilities and growth profile.

Overall, the key message is that MSCI is operating in a highly favorable environment and is making strategic investments to solidify its leadership position across its core and emerging product areas. The company’s focus on climate, ESG, custom indices, and private assets appears well-aligned with long-term investor interests.

Earnings Call Analysis 2021 Q3

MSCI Sees Enormous Opportunities Ahead

MSCI sees enormous opportunities ahead, particularly in solutions like investment thesis indices, fixed income, private assets, and ESG/climate. They are aggressively investing to capitalize on these opportunities.

Addressing Climate Change Presents Significant Opportunities

MSCI believes addressing climate change will require a massive reconstruction of the global economy, presenting significant opportunities for MSCI to be the premier provider of climate-related tools and data for investors.

Strong Momentum in Key Franchises

MSCI is seeing strong momentum in its key franchises, with Index, ESG/Climate, and Private Assets all experiencing robust growth. The company is also making progress in expanding into new client segments like wealth managers, insurance companies, and corporates.

Enhancing Data and Technology Capabilities

MSCI is focused on enhancing its data and technology capabilities, including through initiatives like MSCI Data Explorer and Data Lake, to meet clients’ growing appetite for rich, extensive data.

Regulations like SFDR are driving increased demand for MSCI’s ESG and climate-related products and services, which the company views as a competitive advantage as it can scale up its business more efficiently than smaller competitors.

Disciplined Capital Allocation

MSCI remains disciplined in its capital allocation, using excess cash for opportunistic share repurchases and strategic M&A, with a focus on bolt-on acquisitions in key growth areas.

Overall, MSCI appears well-positioned to capitalize on the significant secular trends in ESG and climate investing, with a comprehensive suite of solutions and a strong financial position to invest in future growth.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.