FactSet Earnings: Some Headwinds but Still Robust Revenue Growth

Narrow-moat FactSet FDS finished its fiscal year on solid footing. Revenue of $536 million was virtually in line with the FactSet consensus estimate of $535 million, and though adjusted EPS of $2.93 missed the consensus estimate of $3.51, this was largely due to certain tax issues. We note that the firm’s adjusted operating margin of 33.6% was a strong improvement from last year’s 31.5%. Overall, there was little in FactSet’s earnings release that would alter our long-term view of the firm, and we will maintain our narrow moat rating and $365 fair value estimate.

FactSet’s organic revenue growth of 7.2%, a deceleration of 8.5% from the firm’s third quarter, was still solid, in our view, as user growth for FactSet is subdued and FactSet’s clients are scrutinizing and cutting budgets. FactSet grew research and advisory subscriptions by 5%. The firm continues to win market share (particularly in wealth), take pricing, and has certain strong segments such as private equity and venture capital. These strengths were able to offset some of the user count erosion as investment banks, for example, cut back on hiring. Analytics and trading as well as its data feeds business each grew 9%, which we believe reflects the fact that they are less tied to the number of users.

As is customary, FactSet provided its initial guidance on fiscal 2024. FactSet’s initial revenue guide of $2.21 billion-$2.23 billion compares with our estimate of $2.23 billion. The firm’s operating margin was higher than our forecasts, but a higher-than-expected tax rate put our pre-earnings fiscal 2024 EPS estimates within FactSet’s range. FactSet expects a stronger second half as customer sentiment improves and the comparisons get easier.