FactSet (FDS 226.32, -5.33, -2.30%) opened lower by 5% after reporting Q4 (Aug)
results this morning. Currently a component of the S&P MidCap 400, FactSet
provides financial information and analytical applications for the investment
community. A software and data provider servicing the financial sector, it
delivers insight and information to financial investment professionals through
its analytics, content, services, and technology.
A variety of professionals from both the buy-side and the sell-side use FactSet’s comprehensive datasets and analytics, integrated across asset classes with client data, to support their workflow. FactSet’s research solutions are especially valuable to investment banking clients, both buy- and sell-side researchers, players in private equity and capital markets, and those who report on business and analysts via investor relations and the media. Additional offered solutions oriented around portfolio management and trading, analytics, wealth management, advisory, technology, and more focus on supporting professionals in those operations.
From streaming real-time data to historical information, including quotes, estimates, news, and commentary, FactSet offers both unique and third-party content to clients through desktop, wireless, and off-platform services. Its platform includes analyses of discrete companies and of given industries more broadly, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization, and research management systems. FDS primarily generates revenue from subscriptions.
Turning to the Q4 (Aug) results, non-GAAP EPS rose 16% year/year to $2.20 while revenue rose 5.9% year/year to $345.9 mln. The EPS and revenue numbers were slightly below market expectations. With FY18 now wrapped up, FDS provided FY19 guidance for the first time: the company anticipates non-GAAP EPS of $9.45-9.65 and revenue of $1.41-1.45 bln. Both are in-line with market expectations. Additionally, FDS expects FY19 adjusted operating margin of 31.5-32.5%.
The increase in revenue is primarily due to higher sales of research and analytics products, content and technology solutions, and wealth management solutions. Annual Subscription Value (ASV) increased to $1.39 bln at August 31, 2018 compared with prior year ASV of $1.32 bln, with a reported organic growth rate in the quarter of 5.7% -- 5.4% for buy-side ASV and 7.3% for sell-side. Adjusted operating margin rose slightly in AugQ to 31.3% from 31.2% in the prior year period.
Other highlights from the full fiscal year 2018: revenue increased 10.6% to $1.35 bln, up 5.6% organically. Adjusted EPS increased 16.7% to $8.53. Client count increased by 8.4%, or 398, during the year, while users grew by 3.4%. In addition, FactSet expanded its Multi-Asset Class risk models, leading to several global client wins and strengthening its position in the analytics market.
FactSet also launched Open:FactSet Marketplace, a new online platform that offers both financial information and alternative data, such as satellite, sentiment, and environmental, social, and governance data, to address the growing demand for integrated data. Finally, FactSet expanded its global footprint by opening a new office in Shanghai, China, which supports FactSet's presence in the rapidly expanding Chinese market.
The stock is trading lower on the AugQ report and FY19 guidance. Last quarter, FDS reported some pretty nice EPS upside, but this quarter they came up a bit short. Also, the stock had been on a nice move higher since early August when FactSet announced it had been selected to be the primary market data provider for Merrill Lynch Wealth Management. Starting later this year, FactSet will deploy its Market Data platform to more than 15,000 wealth management professionals across Merrill Lynch. Wealth management is a growing part of FDS' business and currently represents 10% of ASV. This was a nice win for FDS and a good indicator of its ability to realize growth in its wealth management segment. Perhaps the stock’s moderately lower performance today stems from investors who had been hoping for a more bullish outlook for FY19 feeling somewhat disappointed by the actual guidance.
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