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Matthew Berg

IDC AT A GLANCE

P/E ► 16.8 AVG EV/EBITDA ► 8.73 AVG ROA ► 12.1% AVG ROE ► 14.5% AVG Debt to Equity ► 0.185 VERY LOW Current Ratio ► 3.23 HIGH

 

 

 

 

 

 

Interactive Data 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.^[1] 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 portion of revenues is less than 10% of the companies total revenues.^[2] IDC is an international company but makes about 70% of its revenue in the United States.^[3] It also operates across mainland Europe, the United Kingdom, and has begun expansion into the Asian-Pacific market.

In 2008, IDC made total revenues of $750.5 million, up 8.8% from $689.6 million in 2007. Net Income also increased in 2008 by 13.2% to $142.6 million, up from $126.0 million in 2007.^[4] In 2008, revenue was $85.7 million from UK sales (11.4% of total revenues), $116.8 million from other European sales (15.6%), and $18.4 million from Asian sales (2.5%).^[3] Although IDC's revenues have increased consistently by around 12 to 13% over the past four years, growth has slowed in 2008 to 8.8%.^[4] Also, the company's net income declined by 1.1% in the first quarter of 2009 compared to the first quarter of 2008, causing IDC to revise its financial outlook for the rest of the fiscal year.^[5]

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. Foreign markets were previously IDC's main source of growth, and now since the growth has slowed, IDC's revenues are no longer growing fast enough to cover costs. 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 asses 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.^[6] 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.^[2]

Only about 30% of IDC's revenue comes from outside of the US, with approximately 28% of its total revenue coming from Europe.^[7] However, IDC has acquired several foreign businesses to begin expansion into global markets. In August of 2008, IDC acquired Kler's Financial Data Service S.r.l., based in Rome.^[6] IDC is integrating Kler's into its European operations and will mainly target customers in Italy. Additionally, in December of 2008, IDC purchased a 80% stake NTT DATA Financial Corporating, which provides pricing for stocks, bonds, options, and futures.^[6] NDF is based in Tokyo and will lead the way for IDC's expansion into the Asian-Pacific market, which now only provides about 2% of IDC's total revenues.^[3]

Business and Financial Metrics

IDC's revenue increased in 2008 by 8.8% to $751 million, up from $609 million in 2007.^[4] Total Revenue increased by $60.9 million in 2008, partly due to IDC's acquisitions, specifically Kler's, which contributed approximately 10% of the increase in revenue.^[8] During the first quarter of 2009, total revenue increased by $4.3 million, or 2.4%; however, total costs and expenses increased by $4.9 million, or 3.7%, yielding a decrease in net income of $0.3 million, or 1.1%, when compared to the first quarter of 2008.^[5] The slowed growth in revenues can be attributed to negative growth in the Real-Time Services and eSignal businesses, in which revenues declined by 8.0% and 3.4%, respectively.^[5] Both decreases in business revenues were caused by the weakening of the US dollar, and prior to the currency adjustment, revenues increased for both businesses.

Business Segments

IDC is made up of two primary business segments with several sub-segments as follows:

Institutional Services (88% of 2008 Revenue)^[6]

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.^[6] Its revenue was $661.6 million in 2008 up 10% from $601.2 million in 2007.^[6] The Institutional Services segment is divided into three businesses:

• Interactive Data Pricing and Reference Data 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. This business made $475.8 million in revenue in 2008, which was 63.4% of total revenue.^[9] Also in 2008, the Pricing and Reference Data business expanded in the Asian-Pacific and European markets by acquiring an 80% stake in a provider of pricing data NTT DATA Financial Corporation, renaming it Interactive Data Japan KK, and by acquiring a provider of reference data Kler's Financial Data Service S.r.l., renaming it Interactive Data Kler's.^[6]
• Interactive Data Real-Time Services sells global real-time and delayed financial market data concerning Equities, Derivatives, Futures, Fixed income securities, and Exchange Rates throughout the trading day. This business accounted for $150.3 million (20.4%) of total revenue in 2008.^[9]
• Interactive Data Fixed-Income Analytics sells comprehensive Fixed-Income Security analytics and data. This business accounted for $32.8 million (4.4%) of total revenue in 2008.^[9]

Active Trader Services (12% of 2008 Revenue)^[6]

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.^[9]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.^[10] The business also offers free financial information and news about securities on its websites. This segment made $88.9 million in 2008 revenue, up 0.6% from $88.4 million in 2007.^[6]

The Pricing and Reference Data and Real-Time Services businesses have continued to grow more than the other businesses and still represent more than 80% of IDC's revenues.^[6][11]

IDC earns 98% of its revenues in the US and Europe with the Asian-Pacific market only accounting for about 2% of its revenues.^[3]

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.^[12] 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.^[12] 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. ^[13] 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.^[14] 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%.^[5] 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.^[14]

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.^[15] 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.^[15] 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.^[16]

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.^[17][18] These companies are such big competitors because 88% of IDC's revenues come from this segment.^[8] 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.^[17] 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.^[18] 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.^[19] 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.^[20]

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. ↑ IDC 2008 10-K pg. 25  
2. ↑ ^{2.0 2.1} IDC 2008 10-K pg. 8  
3. ↑ ^{3.0 3.1 3.2 3.3} IDC 2008 10-K pg. 46  
4. ↑ ^{4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9} IDC 2008 10-K pg. 24  
5. ↑ ^{5.0 5.1 5.2 5.3} IDC 2008 10-Q pg. 25  
6. ↑ ^{6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9} IDC 2008 10-K pg. 1  
7. ↑ IDC 2008 10-K pg. 13  
8. ↑ ^{8.0 8.1} IDC 2008 10-K pg. 29  
9. ↑ ^{9.0 9.1 9.2 9.3} IDC 2008 10-K pg. 2  
10. ↑
11. ↑ IDC 2008 10-K pg. 5-8  
12. ↑ ^{12.0 12.1} IDC 2008 10-K pg. 16  
13. ↑ IDC 2008 10-Q pg. 23  
14. ↑ ^{14.0 14.1} IDC 2008 10-Q pg. 26  
15. ↑ ^{15.0 15.1} Reuters: Key Developments for Interactive Data Corp
16. ↑ IDC 2008 10-K pg. 17  
17. ↑ ^{17.0 17.1} Yahoo! Finance: Thomson Reuters Corporation (TRI)
18. ↑ ^{18.0 18.1 18.2 18.3 18.4 18.5 18.6 18.7} FDS 2008 10-K pg. 10  
19. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD)
20. ↑ FinancialContent: About Us
21. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
22. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
23. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
24. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
25. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
26. ↑ Yahoo! Finance: Thomson Reuters Corporation (TRI), Income Statement
27. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
28. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
29. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
30. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
31. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
32. ↑ Yahoo! Finance: TradeStation Group Inc. (TRAD), Income Statement
33. ↑ Google Finance: FinancialContent, Inc. (FCON)
34. ↑ Google Finance: FinancialContent, Inc. (FCON)
35. ↑ Google Finance: FinancialContent, Inc. (FCON)
36. ↑ Google Finance: FinancialContent, Inc. (FCON)
37. ↑ Google Finance: FinancialContent, Inc. (FCON)
38. ↑ Google Finance: FinancialContent, Inc. (FCON)

Note: The sources for the interactive stock price chart annotations at the top of the page follow.

1. Google Finance: Interactive Data Corp. (http://www.google.com/finance?q=NYSE:IDC)
2. Business Wire: Interactive Data Launches Business Entity Service (http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090318005213&newsLang=en)
3. RTT News: Interactive Data Q1 Profit Declines; Revises FY09 Outlook (http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=922309%20&Category=Breaking%20News)
4. Reuters: Key Developments for Interactive Data Corp (http://www.reuters.com/finance/stocks/keyDevelopments?symbol=IDC.N)