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FactSet Research Systems (FDS) |
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WIKI ANALYSIS
FactSet Research Systems (NYSE: FDS) sells financial data and analysis products to asset managers and investment banks.[1] The company aggregates financial information for tens of thousands of companies and securities world-wide from more than 200 information databases and implements this into a single online platform offering application suites for analysis and research.[1] All of FactSet's clients come from the financial services industry, including hedge funds, private equity firms, and investment banks;[2][1] in fiscal 2009, 82% of revenue came from investment management clients, while the remaining 18% came from investment banking institutions.[1][3]
Company Overview
FactSet aggregates financial data for tens of thousands of companies and securities across the globe from more than 200 financial databases (including "premium" data providers such as Thomson/Reuters, Merrill Lynch, and Lehman Brothers)[1] and implements this data onto a single online platform for financial research.[1] Generally, professional investment institutions purchase monthly subscriptions to the services at variable cost[1][4] though, in some cases, FactSet receives revenue from commissions for trades brokered through its subsidiary FDS.[5]
Business and Financial Metrics
FactSet's subscriptions as of August 31, 2009 increased $4 million over the prior year to $619 million.[1] Domestic operations account for $419 million of the total, while international subscriptions are now $200 million, or 32% of total subscriptions.[1] The number of clients subscribing to FactSet's services totaled 2,045, down from 2,085 in the prior year.[1] FactSet's workstation count, which is a measure of the number of financial professionals within its client base that use its services, decreased 7% to 37,300 from approximately 40,100 in the prior year.[1] The decrease was entirely in FactSet's sell-side client base.
FactSet's subscriptions, client count, and users were under pressure due to client cost-cutting, layoffs, and firm failures related to the 2009 Financial Crisis.[1] With the market gains of recent months, clients have begun, cautiously, to look for ways to improve their investment processes, a change in mindset that has resulted in a modest uptick in FactSet's key metrics during the fourth fiscal quarter.[1]
Second Quarter 2010 Results (ended Feb. 28, 2010)[6]
FactSet Research announced revenues of $157.3 million, up 0.5% compared to the prior year. Operating income for the second quarter increased to $54.5 million, an advance of 5% from $52.0 million in the same period of fiscal 2009. Net income rose to $36.1 million as compared to $34.6 million a year ago. Diluted earnings per share increased to $0.75, up 6% from $0.71 in the same period of fiscal 2009. Operational highlights for the quarter include:
- Professionals using FactSet increased to 38,800, up 1,400 users.
- Client count was 2,052 at February 28, a net increase of 8 clients during the quarter.
- Employee count at February 28, 2010 was 3,422, up 150 employees during the quarter, driven by the expansion of FactSet's offshore proprietary content operations.
Business Segments
FactSet has one primary product (financial information) that is distributed through two general types of services: those provided for investment management ("buy-side") clients, and those provided for investment banking ("sell-side") clients.[1][7] Pricing is variable but, in general, costs about $50K per year for the first two users, plus an additional $6K for each additional user.[4]
Subscriptions and Commissions from Investment Management Clients (82% of Total Revenues)
Investment Management clients (e.g asset managers, hedge funds, and other "buy-side" institutions) pay for FactSet's information services either in cash (billed monthly) or in commissions from securities transactions brokered by the company's wholly owned subsidiary FDS.[5] FactSet's platform for Investment Management clients is called Directions[8] and includes suites of applications for the analysis of companies and markets, as well as performance analysis of portfolios and fundamental investment strategies in addition to real time news and price quotes.[9][10][11][12][13][14]
Subscriptions from Investment Banking Clients (18% of Total Revenues)
The remainder of FactSet's revenue comes from investment banking clients ("sell-side" institutions)[1][3] who pay a monthly subscription fee for access to the company's services.[5] FactSet's central investment banking product is called IB Central[15] and, like Directions for investment management clients, is comprised of suites of applications for performing tasks including analysis of companies and industries, tracking mergers and acquisitions, and compiling research data into presentations. [16][17][18]
Trends and Forces
FactSet is Particularly Vulnerable to a Downturn In The Financial Services Industry
One hundred percent of FactSet's clients operate in the financial services industry.[1] FactSet's revenue comes from the subscription fees of these clients as well as per user fees beyond the first two users per client.[4] Therefore, a downturn in the financial services industry would diminish earnings as Wall Street firms cut personnel and, thus FactSet's user base.
The financial data industry, like the financial sector it services, is volatile, with contraction and growth closely pegged to the business cycle. When the economy is growing rapidly, demand for the integrated information systems offered by FactSet increases. Conversely, if the economy is depressed, firms look for ways to reduce costs, and the subscription-based model of the information and delivery services industry is particularly vulnerable.
The 2009 Financial Crisis has had an adverse effect on FactSet's investment banking clients. During the past 18 months, several of FactSet's largest banking clients ceased operations, and employment contracted across most of the sell-side, resulting in a decrease in FactSet's user count. On the positive side, the business environment began to stabilize in the summer of 2009 and recent market rallies are beginning to change the tenor of the business environment, resulting in more capital market transactions and a corresponding decrease in FactSet's clients’ willingness to trim subscriptions to financial information systems.
FactSet Maintains an Extremely High Client Retention Rate While Continuing to Add New Customers
FactSet's annual client retention rate was 87% of clients in 2009, lower than in the prior year, but also reflective of a challenging market.[1] At August 31, 2009, annual client retention was greater than 95% of annual subscription value, consistent with the same period a year ago. On a client basis FactSet's annual retention rate was 87% of clients at August 31, 2009, a decrease from 92% a year ago. This decline is a result of client losses relating primarily to small firms rather than larger institutions. As of August 31, 2009, FactSet's largest individual client accounted for less than 2% of total annual subscription revenue and subscriptions from the ten largest clients did not surpass 16% of total client subscriptions, down from 17% as of August 31, 2008.[1]
A high client retention rate ensures a steady revenue stream for FactSet.
FactSet derives 32% of its revenue from international clients
FactSet's U.S. operations accounted for $419 million of subscriptions in 2009, while international subscriptions totaled $200 million, or 32% of total subscriptions. FactSet entered into new lease agreements to support operations in Hyderabad, India, Metro Manila, the Philippines and Hong Kong. The new office space expanded existing international locations by 72,000 square feet. The new space in Hyderabad and Manila was for the expansion of FactSet's proprietary content operations including the FactSet Fundamentals collection team. Employee count overseas grew significantly due to the FactSet content collection operations in India and the Philippines. Headcount increased by 958 since September 1, 2008 to 1,627 international employees as of August 31, 2009, representing 55% of all employees company-wide.
FactSet's international diversification protects the company against a downturn in any one particular economy.
Competition
As FactSet operates in the Information & Delivery Services industry, they compete with anyone who offers financial data and analysis products (including organizations who's data FactSet is aggregating). Some of the major competitors in FactSet's arena include:
- Bloomberg L.P. A privately held worldwide information services, news, and media corporation.[19] Bloomberg's user base of 250,000 is more than seven times that of FactSet.
- Thomson Reuters The result of a recent merger between the Thomson Corporation and the Reuter's group, this company provides electronically delivered information services.[20] Their business activities are more varied than those of FactSet including (in addition to financial data and related services) news media distribution and book publishing.[21]
- Dow Jones A subsidiary of News Corporation (NWS), Dow Jones is a leading provider of news and financial information.[22] The company publishes The Wall Street Journal, the world's leading financial daily paper and owns the investing information site MarketWatch.com.[22] and financial news aggregator Factiva.[23][22]
- Interactive Data (IDC) IDC is a financial market research provider for large financial institutions, active traders, and independent investors. IDC provides market information on equities, including options, fixed-income securities, and stocks, and is comprised of four businesses to better service its customers.
References
- ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 FactSet 2009 Annual Report
- ↑ FactSet Research Systems, Inc. Form 10-K for Fiscal Year 2007, Page 7
- ↑ 3.0 3.1 FactSet Research Systems, Inc. Form 10-K for Fiscal Year 2007, Page 14
- ↑ 4.0 4.1 4.2 Gurufocus.com's coverage of FactSet
- ↑ 5.0 5.1 5.2 FactSet Research Systems, Inc. Form 10-K for Fiscal Year 2007, Page 36
- ↑ "FactSet Research Systems Reports Results for the Second Quarter of Fiscal 2010" March 16, 2010
- ↑ FactSet Research Systems Products Overview
- ↑ FactSet Research Systems Overview of Investment Management Products
- ↑ FactSet Research Systems Product Overview of Company Analytics
- ↑ FactSet Research Systems Product Overview of Market Analytics
- ↑ FactSet Research Systems Product Overview of Real-Time Analytics
- ↑ FactSet Research Systems Product Overview of Portfolio Analytics
- ↑ FactSet Research Systems Overview of Quantitative Analysis Applications
- ↑ FactSet Research Systems Product Overview of Fixed Income Analysis.
- ↑ FactSet Research Systems, Inc. Form 10-K for Fiscal Year 2007, Page 5
- ↑ FactSet Research Systems Product Overview of Company and Industry Analytics
- ↑ FactSet Research Systems Product Overview of Deal Analytics
- ↑ FactSet Research Systems Product Overview of Models and Presentations
- ↑ Google Finance's Coverage of Bloomberg
- ↑ Google Finances Coverage of Thomson Reuters
- ↑ Hoover's Coverage of Thomson Reuters
- ↑ 22.0 22.1 22.2 Hoover's Coverage of the Dow Jones Company
- ↑ Google Finance's Coverage of Factiva
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