July 9, 2021

When customers do not renew their Morningstar Data or Direct licenses, excluding situations involving consolidation or restructuring, which competitor do they most frequently switch to?
a. Has there been any significant change to the competitive landscape for these products?
b. Are there any emerging vendors that have been winning against Morningstar Data and Direct more frequently?

We believe that the primary driver of churn in these product areas is client consolidation/ restructuring. We have a long, successful history of competing with various data and platform providers and typically win and retain clients based on the unique attributes of the products and services we provide.

As noted in our 10-K, our main global competitors for mutual fund data include Financial Express and Thomson Reuters. We also compete against smaller players that focus on local or regional information. For market and equity data, we primarily compete with FactSet, S&P Global, Interactive Data, and Thomson Reuters. We believe that Morningstar Data’s competitive strengths lie in its proprietary datasets, like managed fund data, that competitors have historically been unable to replicate at a similar breadth and depth. Occasionally, companies like Financial Express can offer a competitive dataset for a particular country or geographical area due to their local presences, but we tend to retain clients that rely on the more comprehensive offering that we provide. Our most typical non-renewal scenario for Morningstar Data involves redistributors and fintech clients. These firms will occasionally cancel as a result of strategic pivots, price sensitivity, or simply going out of business.

As outlined in our 10-K, we count Bloomberg, eVestment Alliance, FactSet Research System’s Cognity and SPAR, Strategic Insight’s Simfund, and Refinitiv’s Eikon amongst our competitive set for Morningstar Direct. We continue to demonstrate solid YOY growth in both revenue and licenses, with deceleration in recent quarters mainly attributed to consolidation due to mergers and acquisitions.

Ultimately, growth in Morningstar Direct hinges on our ability to build new datasets and deliver efficiencies in our clients’ workflows. Clients tend to stay with us because of the proprietary datasets they consume through the platform, as well as the ease of incorporating their own proprietary data sets into our custom calculations and templates. Recently, we’ve seen growing demand from clients for ESG-related datasets, which give Morningstar Direct users specific information regarding a fund’s sustainability factors. This functionality has particularly resonated in Europe due to the recently enacted Sustainable Finance Disclosure Regulation, but we have also seen interest rise in other markets. We’ve also continued to pull functionality from Sustainalytics into Morningstar Direct, most recently displaying company-level ESG Risk Ratings next to companies that are covered by a Sustainalytics analyst. This enhancement allows users to quickly determine what portfolio holdings contribute to or detract from an aggregate Portfolio ESG Risk Exposure score. In addition, we’ve incorporated ESG data and components into Presentation Studio, so that clients can more easily illustrate concepts such as Carbon Intensity and ESG Risk Distribution through visually appealing report templates.

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