FactSet Research Systems

FactSet reported a solid finish to fiscal 2026, with organic revenue growth of 7.1% in the fourth quarter, up slightly from 7.0% in the third quarter. Management initiated fiscal 2027 guidance. Shares initially dropped modestly in premarket trading but later rebounded.

Why it matters: FactSet continues to execute well, and fourth-quarter results were solid. Although the fiscal 2027 outlook came in a touch below consensus on adjusted EPS, management appears to be taking a measured posture, guiding to organic ASV growth of 5.0%-6.5% versus 7.0% in fiscal 2026. Importantly, annual subscription value net additions finished $8 million above the high end of management's outlook, and the upside did not reflect a pull-forward of deals from the first quarter of fiscal 2027. Management suggested its outlook was measured, as ASV additions are seasonally weighted toward the fourth quarter. Organic revenue growth of 7.1% compared favorably with the 5.2% reported by LSEG's data & analytics segment and the 6.2% reported by S&P Global Market Intelligence in the quarter ended June. This is consistent with FactSet's numerous anecdotes of competitive displacements, which management attributed to its capabilities and its consulting team rather than to pricing.

The bottom line: As we update our model, we do not expect a material change to our fair value estimate of $285 per share for no-moat-rated FactSet. Although fourth-quarter results exceeded our forecast, fiscal 2027 operating guidance largely matched our expectations, and FactSet expects a higher tax rate in fiscal 2027.

The big picture: The operating environment remains fluid. Of the $86 million of ASV net additions in the quarter, more than 10%, or roughly $9 million, was attributable to artificial intelligence solutions.

Management noted that it is "very early days" in the industry's transition from subscriptions to a subscription-plus-consumption model. We note that consumption-based pricing is often tiered, but over time it will likely introduce variability into revenue. FactSet will host an investor day on Nov. 10, 2026, the first under CEO Sanoke Viswanathan, who joined the company in September 2025. We expect management to showcase new products and capabilities, including agentic capabilities for its Workstation platform, and to share its medium-term financial targets.

On Sept. 1, 2026, Bloomberg reported that S&P Global was considering a spinoff of Capital IQ. With the caveat that the report did not specify exactly which assets would be included, we reiterate our view that the valuation of high-single-digit billions of dollars contemplated in the article looks aggressive. On Sept. 14, 2026, S&P Global's CFO pushed back somewhat on the reporting, suggesting that the company would trim smaller product lines, but, in our view, did not issue a categorical denial. We wonder whether the speculation could also signal to Capital IQ's competitors that are built on S&P Global data that S&P does not intend to compete aggressively in those markets. Unsurprisingly, FactSet management declined to comment when asked on the earnings call. We view a spinoff as a low-probability event, and the implications for FactSet are unclear. On the one hand, if some data assets are not spun off, that could weaken Capital IQ; on the other, a spinoff could leave FactSet facing a more focused competitor.

Organic ASV growth was also relatively steady sequentially across geographies. Americas organic ASV grew 7.1% (versus 7.2% in the fiscal third quarter), EMEA grew 5.2% (versus 5.6%), and Asia-Pacific grew 10.6% (versus 10.0%). Growth across client segments (institutional buy-side, dealmakers, market infrastructure, and wealth) was also steady sequentially, with no change in growth rate larger than 1 percentage point. FactSet highlighted numerous competitive displacements across sectors, including at a bulge-bracket investment bank, a European quant fund, a regional bank, and fixed-income hedge funds, as well as two Workstation displacements in wealth. FactSet's Model Context Protocol, or MCP, appears to be a meaningful differentiator in these competitive situations. Over time, however, the MCP may become less of a differentiator if newer AI models can use data from more traditional application programming interfaces effectively. FactSet has also launched multi-asset-class risk models. We believe this is a smart move as the total portfolio approach gains steam, and we note that the firm's risk models have historically been skewed toward equities.

For fiscal 2027 through fiscal 2030, our prior model assumed $130 million-$140 million of annual ASV net additions. While we may raise this range modestly, we still expect a moderation from the $168 million achieved in fiscal 2026, given uncertainty stemming from macroeconomic conditions, changes in pricing models, and competition.

Adjusted operating margin in the quarter was 33.0%, down from 34.0% in the third quarter and 33.8% in the year-ago quarter, as higher ASV net additions resulted in greater incentive compensation. Our best estimate is that margin would have been about 120 basis points higher absent the elevated incentive compensation. FactSet finished fiscal 2026 with an adjusted operating margin of 34.5%, which management views as a floor, and it guided to a range of 34.75%-35.25% for fiscal 2027. The midpoint is in line with our pre-earnings expectation of 34.9%. We agree with management's characterization of the fiscal 2026 margin as a floor.

We think FactSet can grow costs more slowly than revenue. Labor costs are roughly 60% of adjusted operating expenses. FactSet has not yet disclosed its headcount at the end of the quarter, but it began the quarter with 12,694 employees, versus 12,800 at the start of the fiscal year. During the quarter, the firm reduced headcount and incurred $27 million in severance, and management commentary suggests further reductions in September. We therefore think labor cost growth can average 3%-4% during our forecast period, combined with a deceleration in technology costs (which grew 13% in the quarter), and can produce margin expansion averaging about 40 to 50 basis points per year during our forecast period, against a backdrop of 5%-6% organic revenue growth. One caveat on FactSet's labor costs is that roughly 68% of its employees are already in low-cost locations, so opportunities for geographic labor arbitrage may be more limited. Technology costs are roughly 18% of adjusted operating expenses, and the firm's token governance and optimization measures support our expectation of a deceleration to a high-single-digit rate.

For a comprehensive view of offshoring in the information services space, clients can view our Sept. 17 special report: "Information Services: How Many Jobs Can Move Offshore?"

After updating our model following the firm’s release of fiscal third-quarter 2026 financial results, we are slightly raising our fair value estimate for FactSet to $285 from $280, primarily due to time value of money and other minor model adjustments. Our $285 fair value estimate equates to 19 times our projected fiscal 2027 GAAP earnings and 15 times our projected fiscal 2027 non-GAAP earnings. FactSet’s performance has generally been robust among different macroeconomic conditions, but the rise of generative AI raises structural rather than cyclical concerns for information services providers such as FactSet.

Over the next five years, we expect FactSet to organically increase revenue by about 5% per year. We expect pricing to contribute 1.0%-1.5% to growth per year. We note that this level of pricing is lower than we saw from fiscal 2022 to fiscal 2024 but is in line with the preceding five-year average. We expect growth in the data feed and wealth management businesses to outpace the firm’s other products, such as its core workstation and buy-side software solutions. After fiscal 2026, we expect ASV additions to settle in the $130 to $140 million range during our forecast period. We believe this moderation is prudent given uncertainty both as it relates to AI disruption as well as in financial markets.

Turning to margins, as the firm invests in AI for both internal productivity and revenue-generating opportunities, we expect adjusted operating expenses to increase by 9% in fiscal 2026, with tech spending rising 16%. This is faster than revenue, and as a result, we expect adjusted operating margins in fiscal 2026 to decline to 34.6% from 36.3% in fiscal 2025. Overall, we believe the firm’s need to invest will limit the prospects for margin expansion. We model adjusted operating margins of about 36.5% in fiscal 2030. We peg FactSet's cost of capital at 8.6% with a cost of equity of 8.9%.

While FactSet products have tended to be sticky, which could be suggestive of switching costs, we believe the rise of generative AI makes the competitive and client landscape uncertain during our forecast period. In addition, aside from CUSIP Global Services, we see little that is truly proprietary, nonreplicable, and essential for its clients. As a result, we do not believe FactSet has a moat at this juncture.

FactSet considers 90% of its annual subscription value as proprietary, which mirrors figures reported by its competitors: 88% for S&P Global’s Market Intelligence and 90% for LSEG. Within that 90% for FactSet, the firm highlights that 40% is derived from proprietary analytics, models, and solutions, and 50% is from proprietary and enriched data and tools. However, considering software solutions as proprietary does not negate the notion that generative AI makes it dramatically easier to create software. In addition, its proprietary data, such as real-time exchange prices, are sourced from other players.

FactSet’s data is the basis of its desktop workstations (which we estimate are about 40% of firmwide revenue) and are used by buy-side and sell-side investment professionals to analyze companies, monitor markets, and generate investment ideas. FactSet’s desktops consist of aggregated data from third-party data suppliers, news sources, exchanges, brokerages, and its own contributions. While FactSet may have some proprietary data (supply chain and deep sector metrics), and while FactSet spends over $100 million on third-party content, we believe competitors have substitutable products and view much of the firm’s proprietary content (aside from CUSIP detailed below) as being “nice to have” rather than “mission critical.”

On the software side, FactSet’s solutions include functions such as portfolio analytics, risk management, performance measurement and attribution, portfolio construction, and trade execution/order management. We see a wide variety of competitors, including MSCI’s Analytics unit, BlackRock’s technology unit (Aladdin), Deutsche Börse’s Qontigo, Bloomberg, State Street’s Charles River Development, SS&C Technologies, and others. Given the embedded nature of software systems in buy-side operations, the decision to switch providers is not taken lightly, as implementations have historically been complex. However, generative AI can reduce these barriers to switching, and vibe coding makes it easier for firms to develop in-house solutions.

In addition, while generative AI LLMs such as Claude are partnering with FactSet, it is unclear whether this will cannibalize its desktop business or otherwise hurt its economics. For instance, if financial data is accessed through LLMs rather than a graphical user interface, it could be easier to switch the underlying data on the back end. FactSet’s management views LLMs as just a distribution channel, similar to desktop, but this may prove overly sanguine.

Evolving dynamics in FactSet’s client base also do not give us sufficient certainty for a moat. As of its 2024 investor day, FactSet disclosed that 51% of its annual subscription value, or ASV, is tied to seat count. However, on its second-quarter 2026 earnings call, FactSet noted that less than 20% of its ASV is directly based on seat count, but we note enterprise agreements can tacitly include seat counts, so there is some gray area here. While our base case does not include significant headcount reductions in the financial services industry, we cannot rule them out either. Furthermore, generative AI may lead to a rapidly changing competitive landscape among FactSet’s clients. Consider FactSet’s wealth management business, which includes clients such as Merrill Lynch and RBC. On Feb. 10, wealth management stocks suffered as Altruist released an artificial intelligence tool. If AI native wealth management firms, which are unlikely to prioritize workstations, take share from incumbents, FactSet’s returns on invested capital (which have been in the 15%-20% range, including goodwill) could be harmed.

In March 2022, FactSet completed its $1.9 billion acquisition of CUSIP Global Services. S&P Global sold CGS to satisfy regulators regarding the closing of its acquisition of IHS Markit. FactSet does not break out CGS revenue or operating income, but we believe CGS is about 10% of the firm’s revenue and 15% of the firm’s adjusted operating income (Note: CUSIPs' operating margins at the time of acquisition were in the 55%-plus range, substantially higher than FactSet). We view CGS as a wide-moat business, as CUSIP numbers are an industry standard. We tend to view industry standards as benefiting from intangible-asset and network-effect moat sources. Supporting our view that CUSIP benefits from network effects, we note that CGS has at times been subject to litigation alleging anticompetitive practices, but the plaintiffs highlight the necessity of CUSIPs.

Of note, the American Bankers Association, or ABA, owns the CUSIP trademark, and FactSet has a contract with the ABA. While FactSet didn’t disclose how long the actual contract is, we note that its ABA intangible asset on its balance sheet ($1.58 billion gross carrying amount, $1.43 billion net carrying amount as of fiscal 2025 year-end) is amortized over 36 years and that S&P Global ran it from inception in 1968 until divestiture to FactSet in 2022. However, at just 15% of operating income, it is not large enough to inform our view on FactSet overall.

FactSet's data feed and wealth management businesses represent strong growth opportunities for the firm.

While organic operating margins have been range-bound, a higher revenue base may make operating margin expansion more attainable in the future, even if progress is choppy.

FactSet's valuation has come down amid management changes and competitive concerns and the market may have an overly myopic view of FactSet's prospects in the AI Era. In addition, AI may increase data usage.

FactSet faces competition from well-established players such as Refinitiv, MSCI, Bloomberg, and S&P Global, as well as software and financial technology upstarts. In addition, artificial intelligence-enabled solutions could also compete with FactSet's products.

FactSet's need to invest in its content and platforms could limit the opportunity for margin expansion.

FactSet's customer base of asset owners and asset managers could face pressure, and a drop in equity markets could weigh on budgets. Also, FactSet clients may consolidate vendors with competitors to streamline operations.