27 Jun 2018 MSCI: A Company to Watch in the Index Industry…
Burton-Taylor International Consulting recently published a report analyzing MSCI Inc., a provider of investment decision support tools including indexes; risk management products and services; Environmental, Social, and Governance (ESG) research and ratings; and real estate research, reporting and benchmarking offerings. The report provides unique perspective on MSCI and its business operations, focusing on revenue trends in its major business lines. Further information on the report can be found here.
MSCI is best known as a major player in the global index industry, representing one of the last independent providers of index services. But the company also offers a suite of risk and analytics tools as part of its product offerings, as well as a small but fast growing presence in the ESG ratings and real estate research sector. Growth across all of these segments contributed to MSCI’s strong performance in 2017, with its flagship index segment driving revenues to $1.3 billion for the year, a 10.7% increase from the year-earlier period (see Exhibit A for an overview of MSCI and its operating segments).
Exhibit A: MSCI Company Overview
MSCI’s Index Segment is their bread-and-butter business. This segment generates the majority of the company’s revenues (56.4%) and has been its fastest growing segment, as measured in year-over-year as well as five year growth. This segment also produces the company’s highest adjusted EBITDA operating margins at 72.6%, as compared to the Analytics and Other segments at 27.3% and 12.1%, respectively. Total revenues in the index segment reached $719.0 million in 2017, jumping $17.1% from 2017 and representing a five-year CAGR of 10.2%. The Index segment represented 56.4% of total revenues in 2017, with 59.4% of index segment revenues generated by subscriptions, 38.4% by asset-based fees, and 2.2% from non-recurring purchases.
Revenue growth in the Analytics segment was relatively flat, rising 2.2% in 2017 to $458.3 million while revenue in the “Other” segment increased 9.2% to $96.9 million. The Analytics segment accounted for 35.9% of total revenues in 2017, while the Other segment accounted 7.6% of total revenues (see Exhibit B for MSCI segment growth trends, year-on-year and five-year CAGR).
Exhibit B: MSCI Segment Growth
The Evolving Competitive Landscape
There has been a slew of acquisitions in the Index industry in recent years as a exchanges and market data vendors snap up index properties as they seek to diversify offerings. The London Stock Exchange snapped up the Russell Index complex in 2014, while ICE acquired the Bank of America Merrill Lynch’s global research index platform at the end of 2017. In the market data space, Bloomberg acquired Barclays Risk Analytics and Index Solutions Business in 2016.
Index businesses are particularly attractive targets for exchanges, especially as index franchises operated by exchanges are seeing significant revenue growth. Nasdaq and the London Stock Exchange Group both saw double-digit revenue growth from index businesses in 2017, with continued gains in 2018 expected to reinforce the trend.
The index industry remains a prime focus for the financial industry, with exchanges and market data vendors nicely positioned to leverage their valuation and pricing assets. Although the industry is dominated by the likes of MSCI, FTSE Russell, and S&P there is a broad range of smaller firms offering new and innovative approaches to indexing services. Burton-Taylor expects the index industry to see continued growth, with mergers and acquisitions activity a given. Our research will continue to focus on evolving trends with our first annual benchmark report on the index industry in the final stages of publication. Please feel free to contact Burton-Taylor at firstname.lastname@example.org for more information on our MSCI – Company to Watch report or our Benchmark index industry study.
David Tabaka is an Analyst at Burton-Taylor International Consulting where he is responsible for research, analysis and report generation covering Exchange Operators and Index Providers.
Andy Nybo is a Director at Burton-Taylor International Consulting where he is responsible for its Exchange vertical, focusing on how competitive pressures are forcing shifts in business models and strategic initiatives of exchanges.