Morningstar 2nd Qtr Earnings Slips 1.2%


Last week Chicago-based independent investment research, data and analytics firm, Morningstar Inc. (MORN), reported that second-quarter profit slipped 1.2% to $31.8 million from $32.2 mln in the same quarter last year, despite a huge gain in its equity and mutual fund research business.

2nd Qtr 2016 Results

As mentioned above, Morningstar’s net income in the 2nd Qtr 2016 fell 1.2% to $31.8 mln or 73 cents per diluted share, compared with $32.2 mln or 72 cents per diluted share in the 2nd Qtr 2015.  Wall Street analysts estimated that Morningstar’s 2nd Qtr EPS would come in at $0.73 per share.

Revenue for the quarter was $198.2 million, a decrease of 1.9% compared with the same period in 2015. Analysts expected Morningstar’s revenue would be slightly higher at $202.1 million. Organic revenue, which excludes acquisitions, divestitures, and the effect of foreign currency translations, was down 1.3%, or $2.6 million.

Joe Mansueto, chairman and chief executive officer of Morningstar, explained the quarter’s results saying, “Negative trends in industry-wide issuance volume for commercial mortgage-backed securities—a sharp reversal from last year’s positive trends—continued to weigh down revenue for our credit ratings business. Revenue also declined for our investment management products and Internet advertising sales, though to a lesser extent. Because our clients have been cautious during this year’s market volatility, we also experienced more moderate growth rates for license-based products such as Morningstar Data and Morningstar Direct.”

Mansueto added, “On the positive side, revenue for Morningstar Research was up more than 20% thanks to new client wins in both equity and manager research. We’ve also been having many positive discussions with potential clients for our research, software, and data solutions as financial advisors and asset managers are adapting to new fiduciary regulations.

Our Take

Despite the 20% surge in revenue for Morningstar’s equity and mutual fund research businesses, the firm posted a modest decline in both overall revenue and profit during the second quarter due in large part to weakness in its credit ratings and investment management products.

This reflects the transition of the firm from a narrow mutual fund ratings and equity research business a mere decade ago to a broad-based financial data, information and analytics business today.  In fact, over the past few years the firm has promoted this transition by investing in credit ratings, analytics, and data businesses.

However, many equity research firms we speak with today wish they had the revenue diversity that Morningstar enjoys today, enabling them to better weather the impact of significant market and regulatory pressures that many research firms are suffering through this year.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

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