MSCI Inc. (NYSE:MSCI) stock rose Wednesday after the index and analytics provider posted quarterly results that came in ahead of Wall Street expectations.The company pointed to steady subscription momentum and stronger asset-linked fees, helping lift profitability.Quarterly MetricsMSCI reported fourth-quarter adjusted earnings per share of $4.66, beating the analyst consensus estimate of $4.57.Quarterly sales of $822.528 million outpaced the Street view of $819.352 million. Operating revenues rose 10.6%, wi ...

Core Insights - MSCI Inc. reported strong financial results for the fourth quarter and full year 2025, achieving double-digit adjusted EPS growth for the 11th consecutive year and a record asset-based-fee run rate driven by ETF inflows [3][5][12]. Financial Performance - Operating revenues for Q4 2025 were $822.5 million, a 10.6% increase from Q4 2024, with organic operating revenue growth at 10.2% [5][7]. - Operating income rose to $463.6 million, up 14.4%, with an operating margin of 56.4% [9][12]. - Net income decreased by 6.8% to $284.7 million, while diluted EPS was $3.81, down 2.3% [12][67]. - Adjusted EPS increased by 11.5% to $4.66, and adjusted EBITDA was $512.0 million, up 13.2% [12][67]. Revenue Breakdown - Recurring subscription revenues increased by 7.5%, and asset-based fees rose by 20.7% [7][14]. - The Index segment saw operating revenues of $479.1 million, up 14.0%, driven by higher asset-based fees and recurring subscription revenues [13][14]. - The Analytics segment reported operating revenues of $182.3 million, a 5.5% increase, while the Sustainability and Climate segment's revenues were $90.3 million, up 5.9% [17][20]. Run Rate and Retention - Total run rate as of December 31, 2025, was $3,301.6 million, a 13.0% increase, with a retention rate of 93.4% [6][7]. - The Index run rate was $1.9 billion, up 16.2%, while the Analytics run rate was $757.4 million, up 8.4% [16][18]. Expenses and Capital Allocation - Total operating expenses were $358.9 million, up 6.1%, primarily due to higher compensation and benefits costs [7][8]. - Free cash flow for Q4 2025 was $464.8 million, up 17.8% [27]. - The company repurchased $2.47 billion worth of shares and paid $134.7 million in dividends during Q4 2025 [28][29]. Guidance for 2026 - MSCI provided guidance for full-year 2026, projecting operating expenses between $1,490 million and $1,530 million, and free cash flow between $1,470 million and $1,530 million [31][32].

Core Thesis - MSCI Inc. is viewed positively due to its strong fundamentals and consistent revenue growth, despite recent stock underperformance [1][3]. Company Overview - MSCI Inc. provides essential decision support tools and solutions for the investment community, including indexes for various financial products like ETFs and mutual funds [2]. Recent Performance - MSCI shares have decreased approximately 14.5% over the past year and only increased about 8% over the last three years, underperforming the S&P 500 [3]. - The company's revenue growth has outpaced share price performance, indicating improved valuation despite limited stock appreciation [3]. Financial Growth - Revenue grew from approximately $1.7 billion in 2020 to an estimated $2.86 billion by the end of 2024, reflecting nearly two decades of steady expansion [4]. - Annual revenue growth has typically ranged between 8% and 12% since around 2015, supported by a diversified platform and high client retention rates near 95% [4]. Market Dynamics - Recent stock weakness is attributed to a slowdown in growth rather than business deterioration, with revenue growth slowing to about 7% over the trailing twelve months [5]. - MSCI's trailing P/E is around 34, which is below historical levels that often reached the 40s or higher [5]. Future Outlook - Analysts project approximately 12% annual earnings growth through 2029, indicating attractive long-term return potential [5]. - Recent positive developments include a modest increase in 2025 free cash flow guidance and several product launches across various sectors [5].

Group 1 - MSCI Inc. is a prominent company in the investment sector, known for licensing its indexes to ETFs [2] - The firm has faced challenges due to a warning from JPMorgan regarding Strategy Inc., which may be removed from MSCI's indexes, impacting its share value [2] - MSCI's shares have declined by 43% year-to-date, raising concerns about its reliance on high share prices for funding Bitcoin purchases [2] Group 2 - Jim Cramer praised MSCI's CEO, Henry Fernandes, as a leading market observer, highlighting the company's robust procedures in index creation [3] - Despite the potential of MSCI, there is a belief that certain AI stocks may offer higher returns with lower risk [3]

Financial Data and Key Metrics Changes - The company aims for low double-digit growth in the index business, currently experiencing high single-digit growth [3][9] - Growth rates with hedge funds are at 22%, wealth managers at 16%, asset owners at 10%, and broker-dealers at 11% [6] - Active managers, the largest client segment, have seen growth rates decline to slightly below 7% due to outflows and fee pressure [7][8] Business Line Data and Key Metrics Changes - The index business has historically shown double-digit growth, with recent trends indicating a shift towards personalized systematic portfolios [10][12] - Custom indexes and additional content sets are opening new opportunities for growth, particularly in wealth management and trading communities [14][15] - Non-market cap, non-ETF assets have grown at 37% in the first quarter, compared to 16% for market cap mandates [45] Market Data and Key Metrics Changes - The company has captured 45% of flows into developed markets outside the U.S. and emerging market ETFs, totaling approximately $37 billion of the $42 billion in flows in the first quarter [25][26] - There is a noted shift in capital flows towards international investing, which is beneficial for the company [20][28] Company Strategy and Development Direction - The company is focused on expanding its index offerings, particularly in custom indexes, which are seen as a major growth driver [42][44] - The strategy includes enhancing product offerings and maintaining a long-term pricing philosophy that emphasizes value addition over aggressive price hikes [34][35] - The company is also positioning itself to benefit from the ongoing shift from active to passive management, while still supporting active managers with innovative solutions [72][75] Management's Comments on Operating Environment and Future Outlook - Management emphasizes the importance of confidence in the market for driving client buying behavior, particularly in relation to equity market stability [16][17] - There is cautious optimism regarding the recovery of international investing and the potential for increased sales as market conditions stabilize [19][20] - The company acknowledges the current challenges in the ESG space but remains committed to helping clients navigate these complexities [95][98] Other Important Information - The company has seen strong growth in its analytics business, driven by fixed income analytics and factor models [84][86] - The competitive landscape remains stable, with the company maintaining strong market share in institutional and retail markets, particularly in Europe [31][32] Q&A Session Summary Question: What are the key growth drivers for the index business? - The company highlighted the utility of its products and the expansion of licensing to more parts of client organizations as key growth drivers [12][13] Question: How does the strengthening equity market affect new sales? - Management noted that sustained momentum in equity markets generally supports client confidence and buying behavior, although it varies by region and client type [16][17] Question: What are the leading indicators for international investing? - Key indicators include a depreciating U.S. dollar, macroeconomic cycles, and valuation comparisons between U.S. and international markets [22][24] Question: How is the company positioned in the custom index market? - The company sees custom indexes as a significant growth opportunity, particularly as clients seek personalized investment strategies [42][44] Question: What is the impact of the shift from active to passive management? - The company remains agnostic to the shift, believing it can benefit from both active and passive strategies, with a focus on providing tools for both [72][75] Question: What is the company's strategy for fixed income? - The company has invested in fixed income analytics and is focusing on differentiated fixed income indexes, particularly in ESG and climate-related areas [79][81]