Morningstar, Inc. MORN Moat

Key data

The moat

Morningstar started by rating mutual funds with stars, which gave it something rare: a consumer-facing brand inside an institutional business. A financial adviser recommending a fund to a client can point at a Morningstar rating and the client knows what it means, which is worth more than any data feed.

Around that sit four other businesses. PitchBook holds private-market data that nobody else assembled. Morningstar Credit rates structured and private debt. Sustainalytics rates companies on environmental and social measures. Indexes licences benchmarks. Each is a different moat and only PitchBook and Credit have a genuine one: proprietary data in the first case, a regulatory licence in the second.

What the moat is supposed to produce is renewal above 100%, meaning existing customers spend more each year than the year before. It still does. It is producing less of it than it was.

Widening or narrowing

Two sequences run against the company.

Consolidated organic growth has fallen in three consecutive quarters with no reversal. The credit business grew between 23% and 34% throughout, which means everything else decelerated harder than the headline shows.

The renewal rates say the same thing from the other direction. PitchBook fell from 108% to 103%, which the company attributes to softness among corporate clients and higher churn. Morningstar Direct fell from 106% to 104%. Those two are the growth engines and both are retaining less.

The overrated case, which here is the company's own framing. Credit ratings is carrying the growth and it is the most cyclical business Morningstar owns, tied directly to structured issuance in the same way the larger agencies are. Every quarterly release attributes the segment's performance to robust issuance conditions. A company whose consolidated growth is decelerating while its cyclical segment grows 23% to 34% is more exposed to the credit cycle than it looks, not less.

On profit pool, Morningstar takes a thin slice across several chains and holds the fat slice in none of them. PitchBook is the exception: private-market data has no substitute and the pricing reflects that, which is why the renewal decline there matters most.

The moat is narrowing.