MSCI Earnings: Sales Activity and Retention Rates Rebound in Second Quarter

Wide-moat MSCI reported a second quarter that helped allay the fears of slow net sales that the firm saw in the first quarter. While MSCI reported revenue and adjusted EPS that topped the FactSet consensus estimates by 2% and 3%, respectively, we attribute the stock's outsize move upward to improving subscription sales and improving retention rates. Firm-wide net new recurring subscription sales was $55 million, up from $48 million in the year-ago period and up from $19 million in the first quarter. The firm's retention rate of 94.8% was down from 95.5% in the year-ago period but up from 92.8% in the first quarter. Despite the strong quarter, MSCI is still seeing elongated sales cycles and expects cancellations to be higher in the third quarter versus the year-ago period, which to us indicates that net new subscription sales activity can be lumpy. As we update our model, we are increasing our fair value estimate by 8% to $495, primarily due to net subscription sales beating our expectations, market appreciation boosting asset-based fees, and time value of money.