FactSet Earnings: Robust Performance but Banking Softness a Likely Modest Headwind Ahead

Narrow-moat FactSet FDS is performing robustly amid an uncertain macroeconomic environment. Revenue of $515 million in the quarter was in line with the FactSet consensus estimate while adjusted EBITDA beat the consensus by 2%. Given the macroeconomic uncertainty, particularly in banking, FactSet reduced its core annual subscription value, or ASV, expectation for fiscal 2023 by $15 million, which equates to about 1% of ASV. Shares are trading down about 6%, which we attribute to the market not being forgiving for a company trading at about 27 times fiscal 2023 earnings. Overall, there was little in the earnings release that would alter our long-term view of the firm, and we’ll maintain our $365 fair value estimate on FactSet’s shares.

FactSet’s fiscal second-quarter organic constant currency revenue grew 8.9%, a slight uptick from 8.3% in the first quarter. With inflation, FactSet pushed higher on pricing. Pricing contributed about 2.4% to ASV growth in the Americas, which compares with the 1%-2% range we have seen over the previous 10 years. We note that FactSet’s entire book does not see pricing increases, and we estimate the average price increases among clients who received price increases was in the 4%-5% range. Aside from pricing, growth was broad-based across client types and solutions.

FactSet reduced its revenue outlook by $15 million at the midpoint primarily due to softness at investment banking clients. Due to seat minimums and enterprise contracts, FactSet’s investment banking revenues are not tied purely to the number of workstations, though there is still an effect. The job market for investment bankers has worsened, as exemplified by reports of layoffs at firms such as Goldman Sachs and Bank of America and likely layoffs with a UBS and Credit Suisse tie-up. In addition to banking softness, FactSet is also seeing elongated sales cycles among its other customer types, particularly among midsize clients.