RBC Capital Markets is betting that MSCI, the index and data giant, will deliver third-quarter results that come in a touch above Wall Street's expectations. The investment bank's analysts see revenue rising about 11.7% to $886 million, powered by stronger asset-based fees and steady subscription sales.
MSCI is scheduled to report its quarterly numbers on Oct. 20. The company is best known for its family of indexes, including the MSCI World and MSCI Emerging Markets indexes, which are used by fund managers around the globe as benchmarks for their portfolios. But MSCI also sells data, analytics, and risk-management tools to investors, and those subscriptions provide a recurring revenue stream that investors tend to value highly.
What's Driving the Expected Growth?
Asset-based fees are the fees MSCI earns based on the amount of money that is tied to its indexes. When markets rise, or when more money flows into funds that track MSCI indexes, these fees tend to climb. RBC's forecast suggests that this part of the business is performing well, likely reflecting a strong quarter for global equities and continued inflows into index-tracking products.
Subscription sales, meanwhile, are the fees MSCI charges for access to its data and analytical tools. These are typically sold on multi-year contracts, making them a predictable and stable source of income. RBC expects these to remain steady, providing a solid base for the company's overall revenue.
The combination of these two revenue streams is a key reason why MSCI is often seen as a high-quality business. Asset-based fees give it upside when markets are strong, while subscriptions provide a floor during tougher times. That mix can make earnings less volatile than at companies that rely on one-off deals or trading volumes.
Why This Matters to Investors
For everyday investors, MSCI's results are more than just a single company's earnings report. The company's fortunes are closely tied to the health of global markets and the popularity of passive investing. If MSCI is seeing strong asset-based fees, it's often a sign that money is flowing into index funds and ETFs, which is a broader trend worth paying attention to.
RBC's note is a positive signal, but it's important to remember that it's just one analyst's view. The actual results could differ, and there are always risks, such as a market downturn that could reduce asset-based fees or a slowdown in new subscription sales. Still, the forecast adds to a growing list of upbeat earnings expectations from financial and data companies this season.
Other firms have also reported strong quarters recently. For example, BlackRock's profit jumped to $1.66 billion as its assets under management hit a record $15.49 trillion, underscoring the strength of the asset management industry. Similarly, Citigroup beat profit estimates as its fee businesses helped offset a slowdown in trading. These reports suggest that the broader financial sector is holding up well, which could bode well for MSCI.
What to Watch When MSCI Reports
When MSCI releases its results on Oct. 20, investors will be looking at a few key things. First, the exact revenue figure and whether it matches or beats the $886 million RBC is projecting. Second, the growth rate of asset-based fees, which will show how much of the increase is coming from market performance versus new client wins. Third, any commentary on subscription sales, particularly whether the company is signing up new clients or expanding existing relationships.
Investors will also be listening for any updates on MSCI's outlook for the rest of the year. The company's guidance can move the stock just as much as the actual numbers, especially if management signals any changes in the competitive landscape or client demand.
For those who own MSCI shares or are considering them, the RBC note is a reason for cautious optimism. But as always, it's wise to look at the full picture when the company reports, rather than relying on a single analyst's forecast.
In the meantime, the broader earnings season is giving investors plenty to digest. From mixed bank earnings to utility results, the market is getting a clearer picture of how different sectors are faring. MSCI's report will add another important data point, especially for those focused on the financial and data services industries.
Ultimately, RBC's expectation that MSCI will edge past Q3 estimates is a small but positive sign. It suggests that the company's core businesses are on solid footing, and that the broader market environment is supportive. Whether that translates into a beat when the numbers are actually released remains to be seen, but it's a good starting point for investors to set their expectations.
