Q3 2024 Moody's $MCO (+1,01%)

Financial performance:

Moody's Corporation reported a strong third quarter 2024, with revenue up 23% to $1.8 billion. Adjusted diluted EPS increased 32% to $3.21, while adjusted operating margin increased 320 basis points to 47.8%. This positive development was driven by significant growth in both segments - Moody's Investors Service (MIS) and Moody's Analytics (MA).

Balance sheet analysis:

As of September 30, 2024, Moody's reported total assets of $15.769 billion, including $2.642 billion in cash and cash equivalents. Shareholders' equity remained solid at USD 4.068 billion, underscoring the company's strong financial position.

Income statement:

The income statement shows robust growth in both sales and profitability. MIS sales increased 41%, while MA reported a 7% increase. Operating income for the quarter was $738 million, representing an operating margin of 40.7%.

Cash flow analysis:

Moody's generated operating cash flow of $2.164 billion in the first nine months of 2024, a significant year-over-year increase. Free cash flow amounted to USD 1.921 billion, supported by the strong growth in net income.

Key figures and profitability:

Adjusted operating margin for the quarter reached 47.8%, compared to 44.6% in the prior year. Full-year adjusted diluted EPS guidance was raised to a range of $11.90 to $12.10, representing year-over-year growth of approximately 21%.

Segment analysis:

• Moody's Investors Service (MIS): Posted impressive revenue growth of 41%, with transactional revenue up 70%. The adjusted operating margin of MIS was a strong 59.6%.
• Moody's Analytics (MA): Reported a 7% increase in revenue and growth in annual recurring revenue (ARR) and recurring revenue of 9% each. MA's adjusted operating margin was 30.3%.

Competitive analysis:

Moody's continues to strengthen its competitive position, particularly in the ratings business, which saw a 41% increase in revenue. The company is also expanding its capabilities in personal lending and sustainable finance, positioning itself for future growth in these areas.

Forecasts and management comments:

The company has raised its full-year MIS revenue growth guidance to the high 20% range, with adjusted operating margin of 59%-60%. For MA, guidance for ARR growth remains in the high single-digit to low double-digit range, with adjusted operating margin of 30%-31%. Management expressed optimism for future growth, supported by cyclical and structural tailwinds such as refinancing waves and increased M&A activity.

Risks and opportunities:

• Risks: Slower than expected adoption of GenAI technologies by large financial institutions and a potential decline in transactional revenue at Moody's Analytics represent risks.
• Opportunities: Expansion into the private credit and sustainable finance market offers significant potential, with assets under management in private credit potentially growing to as much as $3 trillion by 2028.

Summary and strategic implications:

Moody's delivered a record-breaking quarter with strong growth across all segments. The company's strategic focus, particularly in personal lending and sustainable finance, positions it well for future growth. Nevertheless, challenges such as the slower roll-out of GenAI and potential declines in transactional revenues need to be addressed. Overall, Moody's is well positioned to benefit from favorable market conditions and is optimistic about further growth.

I am at least trying to find a favorable entry point and hope it works out.

5 positives and 5 negatives

Positive statements:

• Moody's Corporation reported an impressive 23% increase in revenue to $1.8 billion, marking a record-breaking quarter.
• Adjusted diluted EPS rose 32% to $3.21, underscoring the company's strong profitability.
• The Moody's Investors Service (MIS) segment delivered outstanding revenue growth of 41%, with transactional revenue up 70%, significantly outpacing global issuance growth of 51%.
• Moody's Analytics (MA) reported solid growth of 9% in both ARR and recurring revenue, with the Decision Solutions line leading the way with a 12% increase in ARR.
• The company raised its full-year guidance for MIS revenue growth to the high 20% range and adjusted operating margin to 59%-60%, signaling confidence in continued strong performance.

Negative statements:

• KYC ARR growth slowed to 14% in the third quarter, down from 19% in the year-ago quarter, due to the renewal of large contracts with the government at lower rates.
• Slower growth was observed in Moody's Analytics, with some areas such as Data & Information and Research & Insights falling short of expectations.
• The forecast for adjusted diluted EPS in the fourth quarter indicates flat or slightly declining year-on-year growth, pointing to potential challenges in maintaining the pace of growth.
• Moody's Analytics reported a decline in transactional revenue driven by a double-digit decline in low-margin transactional revenue.
• The adoption of GenAI capabilities by large financial institutions has been slower than expected, impacting the growth outlook for Moody's Analytics.