S&P Global's Progress with AI and Positive Market Outlook
2023-08-01
S&P Global held its second quarter 2023 earnings conference call, where company executives discussed financial results, provided guidance, and addressed questions from participants. One of the key topics of discussion was the outlook for ratings and debt issuance for the year, with a particular focus on investment grade and high yield bank loans. The potential impact of the commercial real estate market on the banking and financial sector was also highlighted.
A standout topic in the meeting was the implementation and use of artificial intelligence (AI) at S&P Global. The company has made significant progress in building, testing, and implementing AI tools across various areas within the organization. They emphasized the advantage of their AI platform, Kensho, and the importance of their large and proprietary datasets. S&P Global's trusted brands and credibility enable them to have meaningful conversations with industry partners, technology infrastructure providers, and customers in the AI space. Trust was identified as a crucial factor in the success of any AI-based products the company brings to market.
While embracing technological advances, the speaker emphasized the need for prudence and discipline in developing AI-driven tools. The company wants to ensure that each step taken is focused on creating customer value rather than simply creating tools.
In conclusion, S&P Global has made significant progress in implementing and utilizing AI, leveraging their proprietary datasets and the advantage of the Kensho AI platform. Trust and customer value are key considerations in their approach to AI, and they are cautious about investing wisely in this technology.
The market outlook for S&P Global remains positive for the remainder of the year. The company expects volumes for exchange-traded derivatives (ETDs) to remain positive, albeit slightly lower than the first half of the year. Overall, assets under management (AUM) have increased by 19% compared to the same period last year, providing a strong starting point for the second half of the year. The company believes that AUM levels will continue to drive overall AUM fees growth in the medium and long term. The company has raised guidance for the Index business and expresses optimism about the market outlook.
The key drivers of S&P Global's business are ACV growth, closing rates, retention rates, user growth, and new product launches. The company plans to focus on product innovation in areas such as CARFAX for Life, used car listings, Mastermind, and supply chain and technology. They also aim to capitalize on market opportunities arising from disruptions in the industry and expand into fixed income indices through their merger with IHS Mark.
During the meeting, the company highlighted several key performance indicators (KPIs), including issuance activity, rating withdrawals, and revenue from new or enhanced products. The increase in corporate issuance, both high yield and investment grade, was seen as a positive indicator. The company also noted a decrease in rating withdrawals, which reflects the strength of their brand. They introduced the concept of "Vitality revenue," representing revenue derived from new or substantially enhanced products, which held steady at 11% of total revenue in the second quarter.
Looking ahead, S&P Global's outlook for the remainder of the year is optimistic. They expect volumes for ETDs to remain positive, although slightly lower than the first half of the year. The company's overall AUM has seen a significant increase compared to the same period last year, providing a strong foundation for the second half of the year. They have also raised guidance for the Index business, further indicating their positive outlook.
The participants of the earnings conference call included Doug Peterson, the President and Chief Executive Officer; Ewout Steenbergen, the Executive Vice President and Chief Financial Officer; and Edouard Tavernier, the President of S&P Global Mobility. These key executives provided insights into the company's financial performance and future prospects, discussing results, guidance, and addressing inquiries from investors.
The meeting also delved into the performance and trends in the financial markets, with a focus on interest rates, issuance activity, corporate bonds, bank loans, and structured finance. It was noted that interest rates are expected to stabilize, with only one or two more rate hikes anticipated for the remainder of 2023. Issuance activity was characterized by a higher proportion of refinancing, and corporate issuance, particularly in high yield and investment grade bonds, remained strong. However, there was a softer environment for bank loans and structured finance.
S&P Global's strategic priority is to grow and innovate, with updates and enhancements to their Capital IQ Pro platform. They have reinvented RatingsDirect and launched loan pricing and analytics. Additionally, the introduction of base shipping rates incorporating alternative fuel pricing in the maritime sector was mentioned.
Overall, the second quarter 2023 earnings conference call provided valuable insights into S&P Global's financial performance, strategic initiatives, and market outlook. The company's progress in implementing AI, positive market outlook, and focus on innovation position them well for future growth and success.