Artificial Intelligence on their Minds - Analysis of Data & Analytics CEOs' Earnings Calls
TL;DR - Public Data & Analytics Companies' C-suite's thoughts on AI, AI and AI - plus a little Corporate Development, ESG, Financial Services, and other Headwinds and Tailwinds
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In today’s newsletter we’re going to do something a little different.
Asymmetrix is tracking a growing dataset of 90+ public Data & Analytics companies.
We’re a big fan of
, and love reading their synopses of global consumer and market sentiment as revealed by the C-suite at listed businesses on their earnings calls and at investor days.So we thought we’d do something similar but with an Asymmetrix lens on things.
As this is the first time we’ve done this:
We will go back and look at comments over the past few months, rather than just the most recent remarks;
It’s by no means going to be comprehensive - on this occasion we’ve only looked at 10 or so listed Data & Analytics companies;
Please bear with us as we experiment to find the most useful format.
Please let us know what you think!
Artificial Intelligence
Artificial Intelligence is clearly going to drive growth in Data & Analytics.
Two important market dynamics are providing what we expect to be long-term demand tailwinds for our business. The first is the rising complexity of regulatory compliance, and the second is generative AI. - Steve Hasker, President & CEO, Thomson Reuters - Earnings call Q1 2024 - May 2, 2024.
Data & Analytics firms are looking to use AI in two ways: internal efficiency…
The area where for sure we are having the most success is behind the scenes in data management, operations, quality control and even things like in making our coders more efficient. So generally, it's more getting a better outcome in an existing category rather than transforming the category, right? It's making a certain category of data more accurate, making it easier to get that data, making it faster to get that data, having fewer humans involved in cleaning it, things of that kind. And I think that that's 100% what AI is great at. - Baer Pettit, President, MSCI - Barclays Americas Select Franchise Conference 2024 - May 7, 2024.
… and product development.
So we've categorized our capabilities into three primary buckets that we call navigators, skills and assistance.
Navigators leverage an AI-powered natural language user interface to help our customers really get the most out of our products. And I would expect that almost all of our solutions will have some form of AI navigator or chat, what you might think of as a chatbot. And these will be table stakes, I think, for both our offerings as well as competitor offerings, I would assume in the relatively near future.
Then we've got skills. Those are specialized GenAI capabilities that connect to Moody's data and content and analytics. And we're designing these skills to deliver automation and provide the tools to drive productivity and insight for our customers. And that includes things like the planned release of our Quick Memo, which is our automated credit memo; and our Quick Alert, which is our surveillance and early warning system.
And then we're going to have a set of assistance for a number of our major customer personas, which are going to be a combination of skills and prompt engineering that are most relevant to their jobs to be done. - Rob Fauber, CEO, Moody’s - Earnings call Q2 2024 - July 23, 2024.
All of the big Data & Analytics companies have an AI strategy.
About 1.5 years ago, when we started shifting towards generative AI, we said to Kensho, you need to continue to be our generative AI and our AI center of excellence for S&P Global. It manages our data approach, how we can tokenize information, how we can use it in models because it's not easy to understand how you can take data and then turn it into model ready information to be used by generative artificial intelligence language models.
As part of that approach, we also have in the company a CAIO, a Chief Artificial Intelligence Officer. He's the CEO of Kensho, who also plays that role for us. - Doug Peterson, CEO, S&P Global - Stifel 2024 Cross Sector Insight Conference- June 4, 2024.
Ensuring their data stays proprietary is on CEOs’ minds.
Probably the next most important thing we've done is we've built an internal model management system, a copilot. It's called Spark, S&P Spark Assist. We've now built this in a way that we can bring the models inside of S&P Global, we're open architecture. We're using the models that are being built by anybody who we can mention today, the hyperscalers and others and open source models. We're bringing them in-house. And the reason we're doing that is that we want our data and our proprietary needs to say inside of S&P Global to be used by models that we control so that the output is something that we have. We don't want our data escaping out into the market being used by others. - Doug Peterson, CEO, S&P Global - Stifel 2024 Cross Sector Insight Conference- June 4, 2024.
AI is facilitating the creation of new products using existing datasets.
If you take different divisions and now you can pull out that information, we can do the same thing now with private markets information [from] different parts of business and start extracting it for new solutions. - Doug Peterson, CEO, S&P Global - Stifel 2024 Cross Sector Insight Conference- June 4, 2024.
And enhancing existing products, providing more convenient workflow solutions.
Last quarter, I gave you a glimpse into our GenAI product road map, and I'm excited to share that we launched two new skills this past quarter. And the first of those is an automated credit memo, which saves bankers hours of work by assembling a credit memo, leveraging the bank's in-house content, Moody's content and third-party content.
Second is our early warning system, which is a cutting-edge gen AI-powered solution that's initially focused on commercial real estate that we launched last week. And this solution monitors breaking news. It alerts our customers, and that includes lenders, insurers, and asset managers to risks that could affect their portfolio and allowing them to query a broad range of Moody's data and models to quickly understand the potential impact of a given event. And we've got a number of institutions using both of these solutions in private preview mode, and we're receiving some very encouraging feedback. - Rob Fauber, CEO, Moody’s - Earnings call Q2 2024 - July 23, 2024.
Many Data & Analytics CEOs are circumspect about the immediate returns they expect to see from AI, and are not caught up in the hype.
If you look at Scopus AI specifically, it's a very sophisticated high-end embedded research platform tool and it is not covering a large part of the STM division.
So therefore, its impact commercially to us is going to be gradual and will take time to come through and drive any impact on revenue growth for the division. But the customer feedback has been very positive. The customer interest has been very high. - Erik Engstrom, CEO, RELX - 2023 Earnings Call - Feb 15, 2024.
The ability for us to integrate generative AI technology as an expansion of a new form of artificial intelligence within the existing products is something that our businesses are effectively absorbing into their current financial models and thinking about where they're deploying capital within their own businesses. At this stage, I think there were a couple of opportunities that we evaluated, and we determined kind of just maintaining our natural organic level of investment is the right path at this point. - Lee Shavel, CEO, Verisk - Earnings call Q1 2024 - May 1, 2024.
And (call us cynical but…) ultimately the future looks much the same as today, with AI-driven Data & Analytics winners in every vertical.
I think when it comes to the artificial intelligence space, what we're seeing is happening, sort of an interesting explosion of different companies, right? So certainly there's the sort of foundation model game that's being played out in multiple different contexts. And on top of those foundation models, an explosion of MLOps companies and AIOps companies that are tremendously making progress based purely off of the demand for generative AI products. But I think sitting on top of the foundation model companies and MLOps companies, we're seeing vertical winners effectively, that are coming to market, that are leveraging their existing customer bases, their existing data sets to be able to be successful. Right? So you will see a medical AI leader, you will see a travel AI leader, you will see a tax AI leader. - Tim Hwang, CEO, FiscalNote - FiscalNote's 2024 AI Product Day - June 27, 2024.
Automotive Industry Disruption Spells Opportunity for Data & Analytics Providers.
If you think about the automotive industry and mobility industry globally, it is going through a massive transformation. And it's exciting to be in the Data & Analytics business when you're serving an industry that is shifting from ICE - internal combustion engine systems - to electric, potentially hydrogen to hybrid. What that creates are the groups to work with the OEMs, the manufacturers on how much are they going to manage inventory, what's going to happen with rebates, what's going to happen with interest rate subsidies that are going to take place in that industry. - Doug Peterson, CEO, S&P Global - Stifel 2024 Cross Sector Insight Conference- June 4, 2024.
Comprehensive Datasets provide a Competitive Advantage
Now these products wouldn't be possible without the investments we've been making in our Orbis database, which we believe is the world's best curated database of public and private companies. And we've more than doubled the number of entities we cover since we first acquired Bureau van Dijk. We added more than 20 million companies this year alone. And this past quarter, we reached a pretty incredible milestone with over 0.5 billion companies in our Orbis database. And this massive coverage is a great source of competitive advantage for us. - Rob Fauber, CEO, Moody’s - Earnings call Q2 2024 - July 23, 2024.
Corporate Development
There are opportunities out there to carve out businesses from listed entities.
And so we've grown this thing into an $800 million software revenue business within FICO, even as our distribution is truly anemic.
I think the day will come when the two businesses, Scores and Software, gets separated. That's not crazy. That's something that we explore periodically. And within that, one option would obviously be to sell it to a large software player that would be interested. There's a tax implication for that.
Our cost basis is nearly zero. And so there'd be a significant 21% tax if we were to do that. If we spun it off to FICO shareholders, that would be a tax advantage, that would be the way to do it.
So under the right market conditions, if and when we felt that was the right thing to do, I think FICO shareholders could expect to hold 2 pieces of paper.
I think that's not unlikely. I think someday in the future that could happen. It won't happen anytime soon. I think there's just a lot of growing we need to do first. - Will Lansing, CEO, FICO - Barclays Americas Select Franchise Conference 2024 - May 8, 2024.
Not every Data & Analytics business is looking to make acquisitions.
We have a really strong corporate development function. Suhas Joshi runs it, and he's like the Maytag repairman. But he brings us a lot of stuff to look at. But it's -- so never say never, but I would say that acquisitions are very low on the use of cash. We're big believers in buyback. We think there's a natural level of debt for a company like ours. - Will Lansing, CEO, FICO - Barclays Americas Select Franchise Conference 2024 - May 8, 2024,
And those strategics that are doing M&A are not always willing to pay premium valuations.
I think the focus is on capital allocation and how does the outlook for small- and medium-sized M&A opportunities. I would describe them as they are out there, that I think that valuations remain really high for those entities. - Lee Shavel, CEO, Verisk - Earnings call Q1 2024 - May 1, 2024.
Data & Analytics Businesses as Industry Connectors
And where we have taken initial steps but where I feel the greatest opportunity for us is as a company is to extend beyond that Data & Analytics role to really serve as a data exchange or data network, where we are facilitating industry communication and industry activity at a market level and at a functional level that provides a multiplier effect to value. - Lee Shavel, CEO, Verisk - The 44th Annual William Blair Growth Stock Conference - May 8, 2024.
ESG
The U.S. is still lagging the rest of the world on ESG.
From a regional standpoint segment within the segment run rate growth in the Americas was about 9%, is about 17% in EMEA and 20% in APAC, which is generally in line with what we saw last quarter. And the themes that we're seeing in each of the regions is fairly consistent with what we've seen in the past. In the U.S., we're still seeing investors take a more measured pace on how they're integrating ESG. That's causing longer sales cycles and more deliberate purchasing decisions. In EMEA, we do see opportunities, as you alluded to, in areas like regulations. - Andrew Wiechmann, CFO, MSCI - Q2 Earnings Call - July 23, 2024.
The value of ESG content cuts across multiple sectors.
Thematically, the increased severity and frequency of extreme weather events and an increasing focus on understanding the impact of a change in climate and what kind of financial consequences that has, that is a theme that is driving more and more interest in our solutions. And it's going beyond simply the insurance market. - Rob Fauber, CEO, Moody’s - Earnings call Q2 2024 - July 23, 2024.
Financial Services Trends
There has been a tension at Financial Services institutions between a desire to cut costs and the need to improve their businesses.
Amid an industry reimagining risk management, risk teams and global investment firms are under pressure to find efficiencies, modernize services, all while harnessing the potential power of generative AI. - Baer Pettit, President, MSCI - Q2 Earnings Call - July 23, 2024.
Different parts of the global investment industry are growing at different rates.
There are three big buckets in the global investment industry.
There are the barbells on both sides.
One is rules-based systematic index investing, which continues to grow unabated.
And on the other hand is very active, concentrated management, which obviously, the ultimate expression of that is private asset class management, private equity, private credit, private real estate, etc. But it does include concentrated portfolios, very thematic portfolios and things like that.
And in the middle is the largest segment, the more traditional active management diversified widely -- a large number of shares, active management. That segment will continue to grow but at a slower pace than the two other ones. And it will go through ups and downs. It will go through challenges and all of that. And we're going through a challenge with that segment right now. And we clearly have been relying on that segment for about 50-plus percent of our subscription revenues. But rapidly increasing our penetration on index -- systematic rules-based index management, which includes quantitative investing and index investing and all that and on the other hand, very active management, including our foray into private assets.
So as we look into the future, I don't see us slowing down in our growth rate because we will definitely penetrate the traditional active management more and more. They're going to rely on us more and more in what they do even though it's an industry that is going through some difficulties right now cyclically. And we will increase our growth significantly in the other two sides, which is systematic rules-based investing and private asset class investing. - Henry Fernandez, CEO, MSCI - Q2 Earnings Call - July 23, 2024
Non-Linear Growth in Data & Analytics
I think one common misperception that we encounter is well, “don't you just grow with the insurance industry?” And while on one level we do that as premiums grow and profitability grows for the industry, the value of our data and analytics grow proportionately, but what drives our stronger growth is that as the industry is increasingly grappling with rapidly changing technology and particularly expanding data sets, our ability to be their partner in gathering those data sets, standardizing them, analyzing them and helping them on their journey to become more digitally oriented, more data-intensive and improve the efficiency of their technology is a primary growth driver. - Lee Shavel, CEO, Verisk - The 44th Annual William Blair Growth Stock Conference - May 8, 2024
The Tech Winter has been tough for Marketing Services Data & Analytics firms
Our early adopter set of customers were largely in software and technology spaces, which have certainly been challenged over the last 18 months to 2 years in terms of having to really rationalize their operating models, particularly if you were a growth-at-all-costs type company, getting to a point where you're either cash flow breakeven or a little bit better.
So we've seen a lot of down-sell pressure from those companies that are reducing headcount, pulling back on their more aggressive sales strategies. And as a result, I think that's come from a big tailwind from folks that had received a lot of money. We're investing in those things. We felt down-sell pressure from the folks that -- from those same folks that needed to reduce their cost infrastructure.
And so we are starting to see, particularly in the enterprise and mid-market, stabilization in those net retention rates. In many cases, lower than we want them to be. But obviously, that's a -- hopefully, a precursor to being able to improve those as we move forward. We do continue to see weakness and saw more weakening in Q1 in terms of our small business customers. - Peter Hyzer, CEO, ZoomInfo - Jefferies Software Conference 2024 - May 29, 2024