Overpriced FactSet Facing Margin Pressures

Wide-moat-rated

Last quarter, we restated our belief that the company would struggle to grow GAAP margins in the near term. This quarter gave us no reason to change our mind. Specifically, the company mentioned ongoing restructuring initiatives and higher data costs. We expect increasing data costs will be a recurring theme for the foreseeable future and it’s not apparent to us that FactSet and its main competitors, Bloomberg and Thomson Reuters, have the ability to pass through 100% of these incremental costs. Nevertheless, FactSet reiterated its intention to increase operating margins by 100 basis points annually, which may be achievable in the short run, but we believe will prove challenging over the long term.

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