MSCI's Commitment to AI and Innovation for Competitive Advantage
2023-08-01
The company recently held an earnings call meeting to discuss their competitive advantage and value creation for stakeholders. The meeting saw participation from analysts and investors, providing an opportunity for further questions and discussion.
One of the most intriguing topics discussed during the meeting was the company's utilization of artificial intelligence (AI) and data processing technology. They are leveraging AI in various areas, including EU taxonomy data extraction and natural language processing in deep learning models for analytics. Additionally, they are integrating AI into corporate functions such as finance. This emphasis on AI highlights the company's commitment to innovation and staying competitive in the market. They are also working on integrating AI into their MSCI One platform to provide actionable insights for client portfolios. The company believes that investments in data and technology are crucial for their long-term strategy and for delivering solid performance despite external challenges. Overall, this topic underscores the company's dedication to leveraging advanced technologies to enhance their operations and client experience.
The market outlook for the company appears positive, with growth expected across its product areas, particularly in analytics. However, sales and cancellations in analytics may vary from quarter to quarter. In the ESG and climate segment, there has been significant growth, with a 26% increase in run rate. Although the volume of large-ticket deals has improved compared to the previous quarter, it remains lower than last year's levels. Net new recurring sales have improved since the first quarter but are lower compared to the record second quarter of the previous year, indicating more cautious purchasing decisions from clients. Despite these factors, the company remains confident in its long-term growth targets, expecting mid to high 20% growth due to various opportunities and strong secular drivers. In the real assets segment, the company achieved 9% organic run rate growth.
During the meeting, the company highlighted several key drivers of their business, including business performance and billings, market conditions, assets under management (AUM), index subscription run rate, and pricing.
In terms of future plans, the company aims to expand the coverage of issuers they rate on ESG factors and make changes to their rating methodology. They also intend to incorporate climate considerations into their ESG framework, providing a more comprehensive approach to integrating ESG factors. Additionally, the company plans to increase investment and sales, pursue strategic mergers and acquisitions opportunities, and remain disciplined in terms of price and fit. They are actively exploring opportunities in the M&A market while maintaining a focus on delivering consistent dividends and pursuing share buybacks.
Looking ahead, the company provided an outlook for the upcoming quarter and year. In the analytics segment, new sales and cancellations are expected to be inconsistent quarter to quarter. The ESG and climate reportable segment experienced significant growth in run rate, with 22% growth in ESG and 50% growth in climate. While the volume of large-ticket deals has improved compared to the previous quarter, it remains lower than last year's levels. Net new recurring sales have improved since the first quarter but are significantly lower than the record second quarter of the previous year, indicating cautious purchasing decisions and longer sales cycles from clients. Despite these challenges, the company maintains confidence in achieving its long-term targets of mid to high 20% growth due to various opportunities and strong secular drivers. In the real assets segment, the company achieved 9% organic run rate growth, while benchmarking, market, and portfolio insights offerings showed double-digit growth.
Although specific progress on strategic initiatives was not explicitly stated, there were indications that the company is facing demands for changes and expansions in their offerings related to ESG ratings. They are being asked to provide more comprehensive coverage, make changes to their methodology, and incorporate climate considerations into their ratings. The company acknowledges that meeting these demands will require increased investment and expects sales to increase over time. Additionally, the company remains focused on strategic bolt-on M&A as part of their capital allocation strategy and continues to actively explore opportunities in this area, while maintaining discipline in terms of price and strategic fit.
The earnings call meeting saw participation from various individuals, including Jeremy Ulan, Head of Investor Relations and Treasurer; Henry Fernandez, Chairman and Chief Executive Officer; Baer Pettit, President and Chief Operating Officer; Andy Wiechmann, Chief Financial Officer; and analysts from prominent firms such as Morgan Stanley, UBS, Barclays, JPMorgan Chase and Company, Oppenheimer and Company, RBC Capital Markets, Goldman Sachs, Autonomous Research, Deutsche Bank, Wells Fargo Securities, Bank of America Merrill Lynch, Huber Research Partners, and an analyst named Russell Quelch. The diverse group of participants indicates a high level of interest and engagement in the company's financial performance and future prospects.