Opening Cross: Data: Land of Opportunity—If You Relish a Challenge

Anecdotally, the industry feels positive about 2013, and if exchange results (IMD, Feb. 4) are anything to go by, the financial markets—and, within them, the market data industry—have cause for optimism. And data vendors reported a largely positive end to 2012 in their results, but with warnings that layoffs are not yet over.

Ratings agencies fared well: Moody’s Corp. reported 20 percent revenue growth to $2.73 billion—including a 20 percent rise to $1.89 billion for Moody’s Investor Services and an 18.5 percent rise to $843.5 million for Moody’s Analytics—while McGraw-Hill Financial brushed off last week’s US Department of Justice lawsuit alleging wrongdoing by Standard & Poor’s Ratings Services’ in rating residential mortgage-backed securities and collateralized debt obligations pre-financial crisis, reporting a 13 percent revenue rise to $4.45 billion for 2012, projecting “high single-digit” growth for 2013, and reiterating its position that the DOJ’s lawsuit is without merit, and the S&P documents presented as evidence “display a culture of vigorous debate but not... wrongdoing.”

Revenues for Ratings Services rose 15 percent to $2.03 billion, while operating profit rose 18 percent to $849 million. S&P Capital IQ reported full-year revenues of $1.124 billion, up 9 percent over 2011—though operating profit fell 3 percent to $208 million as the vendor sunk additional investment into integrating and developing recent acquisitions such as QuantHouse, R2 Financial Technologies and Credit Market Analysis.

McGraw-Hill also made almost $175 million in cost cuts, exceeding its $100 million target by the end of 2012, mainly through staff cuts and outsourcing.

Staff cuts were also in evidence at Thomson Reuters, which announced 2,500 layoffs while reporting 2012 results. Though results were modest overall, CEO Jim Smith noted that each segment met the vendor’s targets, calling 2012 “a watershed year,” that gives it a “stronger foundation” for 2013. Financial & Risk revenues grew 1 percent to $6.8 billion, with its Trading segment falling 3 percent to $2.64 billion, the Investors segment falling 1 percent to just under $2.2 billion, Marketplaces rising 8 percent to $1.76 billion, and the Governance, Risk & Compliance segment rising 43 percent (17 percent organic) to $219 million.

However, the main growth came from its legal, tax and accounting units, with financial sales “lower than anticipated,” though Smith said client satisfaction and retention both improved—as evidenced by migrations to its Eikon desktop, which now boasts 40,000 positions, compared to 12,000 a year ago, and increased penetration in the investor segment and in emerging markets—with net sales expected to turn positive later this year.

Meanwhile, Interactive Data reported record revenues of $880.2 million, up 1.4 percent, including a 3.5 percent rise to just over $612 million for its Pricing and Reference Data business, offset by declines in its Trading Solutions unit, including a 3.5 percent drop for real-time feeds and trading infrastructure, and a 2.5 percent fall for hosted web applications and workstations. In contrast, Morningstar reported a 21 percent increase in licenses for its Morningstar Direct terminal, which has a smaller but growing base of 7,435 positions, contributing to overall revenue growth of 4.3 percent to $658.3 million.

But end-users still struggling with strict budget constraints may not be so happy about record results so soon after a meltdown. While the results show there are plenty of opportunities to be had in 2013, there will also be plenty of challenges—one of which may be structural reform of how data is valued and licensed. In fact, the FISD Consumer Constituency Group’s efforts to standardize contracts is an important step in this direction: As with any commodity, if it can be standardized, it becomes more fungible, easier to compare, and makes the market for that commodity—in this case, market data—more competitive. And those who view competition as an opportunity will probably find these changes less of a challenge.