Tuesday, December 16, 2008

Just the FactSet, Ma'am

Well, FactSet (NYSE: FDS) has done it again ... strong revenue and operating income, despite the tough market conditions.

It's interesting to see the subscription numbers; interesting particularly that there hasn't been any apparent impact to all of the hedge funds that are going out of business, nor the spending cutbacks that are going on at bigger institutional shops. So while hedge funds aren't a huge part of FactSet's business (about 6% of subscription value according to this quarter's data), you'd still think there'd be some knock-on effect.

The bottom line is that clients really do see a lot of value in FactSet. Subscriptions generally cost well above $10,000 a year and many firms have multiple subscriptions. That's not a tremendous expense for a shop like T.Rowe Price or Vanguard, but it is more meaningful for smaller shops. It wouldn't surprise me if some firms have made the choice to cut an extra worker or two in order to keep funding the FactSet feeds. Some may see that as heartless, but I think it's a pretty strong affirmation of the perceived value in the product.

This is a company I can love ... the margins are high, the returns on capital are high, the barriers to entry are high, and the growth potential is high. FactSet has a long way to go to catch Bloomberg in terms of the pervasiveness of the product and the features/information offered ... and Bloomberg itself probably still has a ways to go. So, there's plenty of room to grow for a long time to come.

These shares also look pretty cheap ... though so does almost everything these days. This stock probably can't recover until the overall market looks more stable, but this looks like a good one to start accumulating with an eye towards holding it as a long-term core growth position.

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