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Interactive Data (IDC) |
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WIKI ANALYSIS
Interactive Data (NYSE:IDC) provides financial market data and analysis to both investors and investment websites. This data and analysis includes historical, intraday, and end-of-day security pricing, delayed and real-time financial market information, and trading decision support tools. The company focuses its efforts on two segments, the Institutional Services and Active Trader Services segments, and divides its operations into four businesses. The company makes revenues by selling its financial market data to its customers, either through annual subscriptions to its services or through third party vendors that buy specific market data and then resell it to investors. It also makes money through advertising on websites that it runs, but this represents a relatively small portion of total revenues. IDC is an international company but makes the majority of its revenue in the United States. It also operates across mainland Europe, the United Kingdom, and has begun expansion into the Asian-Pacific market.
Revenue growth has begun to slow in the past year because of changing exchange rates. IDC's foreign income has lost value when converted back to US dollars from the euro or pound; prior to currency adjustments, all of IDC's business yield positive revenues, but after the adjustments, some of the companies yielded negative revenues. Furthermore, Exchange Rates have caused IDC's net income loss in the first quarter of 2009. As a result, IDC has tried to increase revenues by developing new products to assess a client's risk, which has been helpful after the 2008 Financial Crisis increased risk and volatility. Some new services include analytic tools that assess risk due to global exposure to different companies and services that measure risk in the US options market.
Company Overview
IDC sells its financial market data and analysis to its customers in its two operating segments, the Institutional Services segment and the Active Traders segment. The company operates three businesses that cater to the needs of the Institutional Services segment, while it has only one business that serves the Active Trader segment. The company markets and licenses its services either directly through subscriptions to its financial information database or indirectly through third-party vendors that resell the market analysis to financial institutions, active traders, and individual investors. IDC disperses its services through Application Programming Interface tools (APIs), which are downloaded onto computers so that the services can be accessed from customers' computers, a network infrastructure of server farms (again so that customers can access information from their computers), and direct subscription terminals.
Business and Financial Metrics
Revenues for IDC have grown every year since 2000. However, in 2009, revenue growth was relatively small, as total revenues increased from $750 million in 2008 to $757 million in 2009. This had an adverse affect on IDC's net income. In 2009, IDC's net income was $141 million, a minimal decline from the previous year's net income of $143 million in 2008.
Business Segments
IDC is made up of two primary business segments with several sub-segments as follows:
Institutional Services (89% of 2009 Revenue)[1]
This segment mainly targets financial institutions, including Banks, Brokerage firms, Mutual Funds, Hedge funds, Insurance Brokers, and money management firms, but also sells its services to financial information providers. Its revenue was $673.8 million in 2009.[1] The Institutional Services segment is divided into three businesses:
- Interactive Data Pricing and Reference Data
This segment sells pricing data for Securities, Commodities , Derivatives, Indices, and Exchange Rates. It concentrates more on listed Public companies, corporate actions like Dividends or credit ratings, and background information necessary for investors trading different securities.
- Interactive Data Real-Time Services
This sells global real-time and delayed financial market data concerning Equities, Derivatives, Futures, Fixed income securities, and Exchange Rates throughout the trading day.
- Interactive Data Fixed-Income Analytics
The Interactive Data Fixed Income Analytics sells comprehensive Fixed-Income Security analytics and data.
Active Trader Services (11% of 2009 Revenue)[2]
IDC considers active traders to be investors that make their own investment decisions, trade frequently, and make a substantial portion of their income from trading. This segment mainly targets active traders and individual investors, and is made up of only the eSignal business. eSignal provides real-time financial market data and decision-support tools, which include Securities prices, historical databases, Technical Analysis reports, portfolio tracking, news, and commentary, to assist in the analysis of traded securities. The business also offers free financial information and news about securities on its websites. This segment made $83.4 million in 2009 revenue.[2]
Key Trends and Forces
IDC has lost a significant number of customers due to the recent consolidation and collapse of many large financial services companies.
The 2008 Financial Crisis has led to consolidation among financial institutions through Mergers and acquisitions (M&A) and the collapse of other financial institutions. This has reduced the number of large institutions in the global financial markets. Between the reduction of different institutions and the cost cutting measures these institutions have taken, the consumption of IDC's institutional services has decreased. These results can be traced to both the cancellation of redundant services after the consolidation of multiple firms and the cancellation of one or more accounts by customers that hold multiple accounts. During the first quarter of 2009, the overall annual retention rate for the institutional services segment was about 93%, 2% lower than the previous 95% rate recorded for the past fours years. The decrease in retention rate contributed to the $0.4 million decrease in first quarter revenues.
Foreign Exchange rates have already decreased IDC's 2009 net income and are projected to reduce net income for the remainder of the fiscal year.
In total, IDC's revenue would have been $15.1 million in the first quarter of 2009 if exchange rates had remained constant over the past year.[3] As the dollar weakened, its value decreased by 0.05 euros per US dollar. Therefore, IDC's foreign earnings lost value when converted back into dollars. Since IDC's foreign net income did not increase enough to compensate for the decreased value of the dollar, the company's net income decreased when compared to the first quarter of fiscal year 2008 by 1.1%. Additionally, because Exchange Rates changed, revenues for the eSignal business were 3.4% lower and revenues for the Real-Time Services business were 8.0% lower in the first quarter of 2009 than they would have been had Exchange Rates remained constant at the prior year's level.[3]
IDC has created new services that assess risk in markets with increased volatility.
At the beginning of the second fiscal quarter of 2009, IDC's Pricing and Reference Data business introduced a new service called the Options Volatility ServiceSM. This service gives investors end-of-day implied volatilities, options risk, and volatilities in the US Options market to assist customers in assessing their risk.[4] After the 2008 Financial Crisis created a lot more risk and volatility in financial markets, there has been a demand for more risk-assessment tools. IDC is developing new services like its Options Volatility ServiceSM to address this demand.[4] The company is trying to be the first to fill clients' needs for lowering risk, thereby increasing revenues. It is IDC's hope that these new risk management products will bring in enough revenues to increase net income and return IDC to positive growth in the depressed global economy.[5]
Competition
IDC's competitors include a range of larger suppliers of market research to smaller specialized providers. This is due to the four different businesses IDC is comprised of, and, therefore, the different services each business offers. However, IDC's largest competitors are Thomson Reuters and FactSet Research Systems, both of whom compete with IDC's Institutional Services segment.[6][7] These companies are such big competitors because 88% of IDC's revenues come from this segment. IDC's competitors include:
- Thomson Reuters (TRI) - Thomson Reuters is a large market research company that provides financial, legal, tax and accounting, health care, science, and media market information to businesses and professionals worldwide.[6] It competes with IDC's Institutional Services segment, mainly the Pricing and Reference Data, and the Real-Time Services businesses.
- FactSet Research Systems (FDS) - FactSet Reasearch Systems, Inc. is a provider of financial and economic data, such as basic financial information on tens of thousands of companies around the world.[7] The company also competes with IDC's Institutional Services segment, mainly with the Fixed-Income Analytics business as a specialty vendor.
- TradeStation Group (TRAD) - Trade Station Group, Inc. is an online brokerage dealer and an online trading technology company. Its products include a trading platform for investors to simulate trading and evaluate trading strategies across asset classes.[8] Trade Station competes mostly with IDC's active trader segment and eSignal's analytic tools used by active traders.
- FinancialContent, Inc. (FCON) is a shell company looking for an operating company to acquire it. It provides stock market prices, business news, and helps advertisers publish advertisements on high-traffic websites.[9]
Thomson Reuters (TRI) is by far the largest competitor with $11.7 billion in revenue while IDC is about 30% larger than FactSet Research Systems (FDS) and 360% larger than TradeStation Group (TRAD).
References
- ↑ 1.0 1.1 IDC 10-K 2009 Item 1 Pg. 1
- ↑ 2.0 2.1 IDC 10-K 2009 Item 1 Pg. 2
- ↑ 3.0 3.1 IDC 2008 10-Q pg. 26
- ↑ 4.0 4.1 Reuters: Key Developments for Interactive Data Corp
- ↑ IDC 2008 10-K pg. 17
- ↑ 6.0 6.1 Yahoo! Finance: Thomson Reuters Corporation (TRI)
- ↑ 7.0 7.1 FDS 2008 10-K pg. 10
- ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD)
- ↑ FinancialContent: About Us
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