A month has gone by since the last earnings report for MSCI (MSCI). Shares have added about 4.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MSCI due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
MSCI Q4 Earnings & Revenues Miss Estimates
MSCI’s fourth-quarter 2020 adjusted earnings of $1.96 per share missed the Zacks Consensus Estimate by 1% but increased 17.4% from the year-ago quarter.
Operating revenues improved 9.1% year over year to $443.7 million and lagged the consensus mark by 0.5%. This year-over-year growth was driven by 9% and 15.3% rise in recurring subscriptions (72.3% of revenues) and asset-based fees (25% of revenues), respectively.
Non-recurring revenues (2.7% of revenues) declined 25% year over year to $11.9 million.
At the end of the quarter, average assets under management were $1 trillion in ETFs linked to MSCI indexes. Total retention rate was 92.6% in the quarter under review.
Index Revenue Details
In the fourth quarter, Index operating revenues (60.6% of operating revenues) improved 10.5% year over year to $268.6 million, primarily driven by growth in recurring subscriptions (up 8%) and asset-based fees (up 15.3%).
Higher recurring subscriptions were driven by growth in market-cap weighted products.
Index net new recurring subscription sales increased 28.6% year over year.
Analytics Revenue Details
Analytics operating revenues (29.8% of operating revenues) improved 3.3% year over year to $132.4 million. While recurring subscription revenues increased 6.1%, non-recurring revenues plunged 55.5%.
Analytics net new recurring subscription sales fell 56.6%.
All Other Segment Revenue Details
All Other operating revenues (9.6% of operating revenues) increased 21% from the year-ago quarter to $42.6 million, primarily driven by recurring subscriptions (up 22.7%).
All Other organic operating revenue growth was 19% with ESG organic operating revenues increasing 23.5%. Moreover, Real Estate organic operating revenues grew 7.8% in the reported quarter.
All Other net new recurring subscription sales soared 96.8% year over year.
Adjusted EBITDA increased 16.3% year over year to $256.1 million in the reported quarter. Moreover, adjusted EBITDA margin expanded 360 basis points (bps) on a year-over-year basis to 57.7%.
Total operating expenses increased 1.2% on a year-over-year basis to $209.6 million. Research & development, and selling & marketing expenses decreased 0.2% and 4.7%, respectively. Moreover, general & administrative expenses fell 6% year over year.
Operating income improved 17.4% from the year-ago quarter to $234.1 million. Operating margin expanded 370 bps to 52.8%.
Balance Sheet & Cash Flow
Total cash and cash equivalents, as of Dec 31, 2020, were $1.3 billion compared with $1.3 billion as of Sep 30, 2020.
Total debt was $3.4 billion as of Dec 31, unchanged sequentially. Total debt to adjusted EBITDA ratio (based on trailing twelve-month-adjusted EBITDA) was 3.5 times, higher than management’s target range of 3-3.5 times.
Net cash provided by operating activities was $235.9 million in the fourth quarter, down 3.2% year over year. Free cash flow was $219 million, down 2.7% year over year.
In the fourth quarter, MSCI repurchased 471,591 million shares for a total value of $164 million. Notably, $1.7 billion is outstanding under the share-repurchase authorization as of Jan 26, 2021.
MSCI also paid out dividends worth $64.4 million in the fourth quarter.
For 2021, MSCI expects total operating expenses of $870-$895 million. Adjusted EBITDA expenses are expected between $780 million and $800 million.
Capex is expected to be $50-$60 million.
Moreover, net cash provided by operating activities and free cash flow are expected to be $845-$885 million and $785-$835 million, respectively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.92% due to these changes.
Currently, MSCI has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise MSCI has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.