Executive Summary / Key Takeaways

• Morningstar, Inc. (MORN) continues to demonstrate robust financial performance, with consolidated revenue increasing 8.4% in Q3 2025 and 7.1% for the first nine months of 2025, underpinned by strong organic growth across its core segments.
• The company's strategic focus on proprietary data, advanced analytics, and independent research, coupled with significant investments in technological innovation, including AI integration and new index development, reinforces its competitive moat in the evolving financial services landscape.
• Key growth drivers include the PitchBook platform, Morningstar Credit's strong performance in a robust issuance market, and the Morningstar Direct Platform, while strategic acquisitions like DealX, Lumonic, and the pending CRSP deal are set to expand market reach and capabilities.
• Despite a decrease in free cash flow for the first nine months of 2025 due to higher bonus and tax payments, Morningstar maintains a strong liquidity position and demonstrates a commitment to shareholder returns through dividends and a new $1 billion share repurchase program.
• Investors should monitor the successful integration of recent acquisitions, the impact of evolving economic conditions on asset-based revenues, and the company's continued ability to innovate and adapt to technological shifts and regulatory changes in a highly competitive industry.

The Foundation of Insight: Morningstar's Enduring Mission and Strategic Vision

Morningstar, Inc. (NASDAQ:MORN) stands as a cornerstone in the global investment ecosystem, dedicated to empowering investor success through independent insights. Since its incorporation in 1984, the company's mission has been to provide clarity in a complex financial world, enabling institutions, advisors, and individuals to make better-informed decisions. This enduring purpose is realized through a strategy centered on delivering insights and experiences that are essential to investor workflows.

At the heart of Morningstar's strategic advantage lies its proprietary data sets, meaningful analytics, independent research, and effective investment strategies. These elements form the powerful digital solutions that its diverse client base relies upon. The company maintains a keen focus on innovation across data, research, product, and delivery, ensuring it effectively caters to the evolving needs and expectations of investors globally. This commitment is particularly critical in an industry undergoing rapid transformation, driven by technological advancements and shifting market dynamics.

The broader industry landscape is currently shaped by several powerful trends. The "AI boom" continues unabated, with significant investments in AI infrastructure fueling a rise in technology stocks. Investor access and demand for private market exposure are becoming increasingly mainstream, leading to the emergence of "semiliquid funds" as a key entry point. Furthermore, the environmental, social, and governance (ESG) investing space is seeing growing differences in approaches and a push for more standardized, higher-quality ESG indexes and data. Against this backdrop, the economic picture has shown signs of cloudiness, with inflation creeping higher and a softening jobs market influencing interest rate expectations.

Technological Leadership: Powering the Future of Financial Intelligence

Morningstar's competitive edge is significantly amplified by its differentiated technology, which is deeply embedded in its product offerings. The company's core technological strength lies in its ability to collect, process, and deliver vast amounts of proprietary financial data, transforming it into actionable insights through sophisticated analytical models. This foundational technology underpins platforms like Morningstar Direct and PitchBook, providing users with comprehensive tools for investment analysis and decision-making.

The tangible benefits of this technology are evident in the efficiency and depth of analysis it provides. While specific quantifiable metrics for every technological advantage are not publicly detailed, the strategic intent is clear: to convey complex investment information clearly and efficiently. This enables users to perform in-depth due diligence, construct diversified portfolios, and monitor market trends with greater confidence.

Morningstar is actively engaged in significant research and development initiatives to extend its technological leadership. A key area of focus is the integration of artificial intelligence (AI). Morningstar's chief executive officer, Kunal Kapoor, has highlighted "new collaborations to integrate our trusted data with leading generative AI platforms." This initiative aims to leverage AI to enhance data analysis, personalize insights, and streamline workflows, potentially offering users more predictive capabilities and automated research assistance. The strategic goal is to maintain relevance and drive efficiency in an AI-driven financial world.

Further demonstrating its innovation, Morningstar has recently launched and plans to launch several new technological products. The Morningstar PitchBook US Modern Market 100 Index, for instance, is the first benchmark designed to bridge public and private equity exposure in a single index. This innovation addresses the growing demand for private market insights and provides a unified framework for performance benchmarking. Looking ahead, Morningstar and PitchBook are set to launch a comprehensive index suite for Evergreen Private Market Funds in the first quarter of 2026. This suite will offer investors peer group benchmarks to measure the performance of nontraded "semiliquid" or "evergreen" funds across multiple asset classes. These technological advancements contribute directly to Morningstar's competitive moat by offering unique, cutting-edge tools that cater to evolving investor needs, thereby attracting new client segments and strengthening its market positioning.

Strategic Expansion and Segment Performance: A Growth Story Unfolding

Morningstar's journey, rooted in its 1984 founding, has consistently emphasized empowering investors. This long-standing mission has shaped its current strategic responses to market dynamics, leading to a diversified business model structured across five reportable segments: Morningstar Direct Platform, PitchBook, Morningstar Credit, Morningstar Wealth, and Morningstar Retirement, alongside Corporate and All Other (which includes Morningstar Sustainalytics and Morningstar Indexes).

The Morningstar Direct Platform, formerly known as Morningstar Data and Analytics, serves as a core offering, providing comprehensive data, research, and investment analysis. In the third quarter of 2025, this segment reported revenue of $211.10 million, a 6.3% increase year-over-year, with organic revenue growing 6.2%. This growth was primarily fueled by strong demand for Morningstar Data and Morningstar Direct products. However, its adjusted operating margin saw a 1.6 percentage point decrease to 44.40%, reflecting higher compensation costs, the impact of the divested Commodity and Energy Data business, and increased depreciation from capitalized software.

PitchBook, a key growth engine, provides extensive data and research on private capital markets. The segment's revenue increased by 7.9% to $169 million in Q3 2025, with organic revenue growing 7.7%. This performance was driven by the PitchBook platform, showing strength in core investor and advisor client segments like private equity and investment banks, though partially offset by softness in the corporate client segment. The adjusted operating margin for PitchBook decreased by 0.9 percentage points to 31.30%, mainly due to higher compensation costs, including increased headcount in product development and technology.

The Morningstar Credit segment delivered a standout performance, with revenue surging 28.5% to $91.10 million in Q3 2025, and organic revenue growing 27%. This impressive growth was supported by a robust issuance market and broad strength across asset classes and geographies, particularly in US commercial mortgage- and asset-backed securities ratings and Canadian and European corporate ratings. Consequently, its adjusted operating income soared by 84.9% to $28.10 million, and the adjusted operating margin expanded by 9.4 percentage points to 30.80%, reflecting higher revenue despite increased compensation costs. Morningstar DBRS, part of this segment, recently expanded its global footprint with a new regional hub in Australia, marking its official entry into the Asia Pacific region.

Morningstar Wealth provides investment products and platforms for advisors and individuals. Its revenue in Q3 2025 saw a modest 0.5% increase to $62.10 million, but organic revenue grew a more robust 9.8%. This organic growth was primarily driven by Investment Management and increased advertising sales, partially offset by a $1.50 million negative impact from the ongoing sunsetting of Morningstar Office. Assets Under Management or Advisement (AUMA) for Morningstar Wealth increased 11.1% to $70.80 billion, driven by market performance and positive net flows.

The Morningstar Retirement segment, offering managed retirement accounts and fiduciary services, reported a 7.5% increase in revenue to $34.20 million in Q3 2025, with organic growth mirroring this figure. AUMA for this segment grew 12.6% to $297.80 billion, primarily due to market gains and net inflows into traditional and Advisor Managed Accounts. However, the adjusted operating margin declined by 3.7 percentage points to 49.40%, mainly due to higher compensation and marketing expenses.

In terms of strategic acquisitions, Morningstar completed the acquisition of the remaining 65% equity interest in DealX in March 2025, integrating it into the Morningstar Credit segment. Shortly after, it acquired Lumonic, a private credit portfolio monitoring and management platform, which is now part of the PitchBook segment. A significant future initiative is the pending acquisition of the Center for Research in Security Prices, LLC (CRSP), announced in September 2025, for approximately $375 million. This acquisition is expected to close in Q4 2025 and is strategically important as it "will position us as one of the largest index providers for public US equity index funds and provide scale for Morningstar Indexes."

Financial Performance: A Snapshot of Strength and Investment

Morningstar's recent financial performance reflects a company executing its growth strategy effectively, albeit with increased investments impacting short-term cash flow. For the third quarter of 2025, consolidated revenue grew 8.4% to $617.40 million, while for the first nine months of 2025, it increased 7.1% to $1,804.40 million. Organic revenue growth was even stronger, at 9% for the third quarter and 8% for the first nine months, demonstrating underlying business momentum. This growth was broadly distributed, with PitchBook, Morningstar Credit, and Morningstar Direct Platform being primary contributors.

Operating income for Q3 2025 rose 10.6% to $127.80 million, and for the first nine months, it increased 15.9% to $367 million. This translated into an improved operating margin of 20.7% in Q3 2025, up 0.4 percentage points, and 20.3% for the first nine months, an increase of 1.5 percentage points. Adjusted operating income, a non-GAAP measure that excludes intangible amortization and M&A-related expenses, also saw healthy increases of 15.6% to $150.60 million in Q3 2025 and 15.4% to $429.40 million for the first nine months.

The increase in operating expenses, up 8% in Q3 2025 and 5.2% for the first nine months, was primarily driven by higher compensation costs across the board, including annual merit increases, bonus expenses reflecting strong performance, and increased headcount in product development and technology. Notably, severance costs in the first nine months of 2025 were incurred due to the sunsetting of Morningstar Office and a reorganization within Morningstar Sustainalytics. Depreciation expense also rose due to higher capitalized software costs for product enhancements, indicating ongoing investment in its technological infrastructure. Conversely, intangible amortization expense decreased in the first nine months as certain intangible assets from earlier acquisitions became fully amortized.

From a profitability perspective, Morningstar's trailing twelve-month (TTM) gross profit margin stands at 60.93%, its operating profit margin at 17.03%, and its net profit margin at 15.70%. The EBITDA margin is 28.38%. These figures underscore the company's ability to generate healthy profits from its revenue base, reflecting the value of its proprietary data and research offerings.

Liquidity and Capital Allocation: A Prudent Approach

Morningstar maintains a solid liquidity position, with cash, cash equivalents, and investments totaling $514.50 million as of September 30, 2025. However, cash provided by operating activities decreased by 12% to $385.70 million for the first nine months of 2025, and free cash flow declined by 16.3% to $281.30 million during the same period. This reduction was primarily attributable to higher bonus and income tax payments. Despite this, Morningstar believes its available cash, investments, and credit facility will be sufficient to meet its operating and cash needs for at least the next 12 months.

The company's debt structure includes $499.80 million outstanding under its Amended 2022 Credit Agreement and $349.10 million in 2030 Notes as of September 30, 2025. Morningstar was in compliance with its financial covenants, with a consolidated funded indebtedness to consolidated EBITDA ratio of approximately 1.0x.

Morningstar is committed to returning value to shareholders. In September 2025, the board approved a regular quarterly dividend of $0.46 per share. The company also actively manages its share count, repurchasing 729,678 shares for $180.10 million in Q3 2025 and 1.50 million shares for $401.70 million in the first nine months of 2025 under its previous program. Demonstrating continued confidence in its future, Morningstar's board approved a new three-year share repurchase program in October 2025, authorizing up to $1 billion in shares, effective October 31, 2025.

Competitive Landscape: Standing Tall Amidst Giants

Morningstar operates in a highly competitive financial data, research, and investment tools market. Its primary direct competitors include FactSet , S&P Global , London Stock Exchange Group (TICKER:LSEG, which includes Refinitiv), and Thomson Reuters . Morningstar differentiates itself through its strong emphasis on independent research and user accessibility, particularly for advisors and individual investors.

Compared to FactSet (FDS), Morningstar's offerings, such as Morningstar Direct and Advisor Workstation, emphasize independent research and user accessibility, positioning it as a more approachable option for individual investors and smaller advisors. While FactSet focuses on highly integrated, customizable platforms for institutional clients, Morningstar's unique value proposition lies in its educational content and ESG ratings. Morningstar's profitability and cash flow generation are solid, but FactSet has historically demonstrated comparable or stronger operational efficiency due to its broader enterprise-scale offerings.

Against S&P Global (SPGI), Morningstar's strategy prioritizes user-centric investment tools, contrasting with S&P Global's focus on authoritative benchmarks and credit ratings. Morningstar's comprehensive data suites, like Morningstar Data, offer strong customer loyalty in advisor-focused segments, and its offerings provide greater accessibility for retail investors. However, S&P Global often exhibits stronger margins and cash flow generation due to its scale and dominance in global indices and credit ratings.

When compared to London Stock Exchange Group (LSEG), which incorporates Refinitiv, Morningstar's approach prioritizes in-depth research and portfolio tools, while LSEG emphasizes real-time data and trading integration. Morningstar.com, for example, offers lower barriers to entry for individual users, providing a unique value proposition in educational and long-term investment analysis. LSEG, with its diversified revenue from exchange operations and real-time market data, may exhibit stronger overall financial health and growth rates tied to trading volumes.

Finally, in relation to Thomson Reuters (TRI), Morningstar focuses on investment-specific tools and independent analysis, whereas TRI offers a broader portfolio including legal and news services. Morningstar's offerings provide greater specialization in asset management tools, fostering customer loyalty for investment research. However, Thomson Reuters' scale allows for greater content diversity and potentially faster innovation in AI-driven features due to larger R&D investments.

Morningstar's competitive advantages, or "moats," include its strong brand in independent research, which fosters customer loyalty and pricing power. Its proprietary technology platforms, such as Morningstar Direct, offer efficient data analysis and customization, providing a user-friendly alternative to more complex institutional platforms. The company also benefits from network effects within its data ecosystem. However, vulnerabilities exist, such as potential over-reliance on subscription models and challenges in rapid technological adaptation compared to larger, more diversified competitors. The financial data industry also presents significant barriers to entry, including regulatory requirements, the need for extensive data access, and established client networks, which help Morningstar defend its market position.

Outlook and Risks: Charting the Future Course

Morningstar's outlook is characterized by continued strategic investments and a focus on expanding its data and analytics capabilities. The pending acquisition of CRSP, expected to close in Q4 2025, is a significant step to bolster its position in the index provider market. The upcoming launch of the Morningstar PitchBook US Evergreen Fund Indexes in Q1 2026 further underscores its commitment to addressing emerging market needs in private capital. The company also anticipates ongoing capital expenditures for computer hardware, software, and leasehold improvements for the remainder of 2025.

Management has provided specific guidance on intangible amortization expense, projecting $15.40 million for the remainder of 2025, followed by $56.60 million in 2026, $50 million in 2027, $45.90 million in 2028, and $42.80 million in 2029. Similarly, revenue expected to be recognized from contract liabilities is projected at $391.30 million for the remainder of 2025, $747.80 million in 2026, and $221.80 million in 2027. These figures provide a clear roadmap for anticipated expenses and future revenue recognition.

However, Morningstar faces several pertinent risks. The failure to consummate the CRSP acquisition or achieve its anticipated benefits could impact strategic growth. The company is also exposed to changing economic conditions, including prolonged volatility and fluctuating interest rates, which could negatively affect its asset-based businesses. Compliance failures, regulatory actions, and changes in laws applicable to its regulated businesses pose ongoing challenges. The rapid evolution of AI technologies presents both opportunities and risks, including legal implications as AI is integrated into products. Furthermore, the ability to recruit, develop, and retain qualified employees, as well as successfully integrate acquisitions, remains critical for sustained growth. Tax complexities, including the "One Big Beautiful Bill Act" (OBBB) and the OECD's proposed global minimum tax (Pillar Two), could also impact future effective tax rates.

Conclusion

Morningstar, Inc. continues to build upon its strong foundation as a leading provider of independent investment insights. The company's recent financial performance, marked by solid revenue and operating income growth, demonstrates the effectiveness of its strategy to be essential to investor workflows. This success is deeply intertwined with its commitment to technological innovation, from integrating AI into its platforms to developing pioneering indexes for private markets.

Morningstar's strategic acquisitions and global expansion initiatives further reinforce its competitive position against industry giants, leveraging its brand strength and proprietary data as key differentiators. While facing challenges such as increased operating expenses and a competitive landscape, the company's prudent capital allocation, including a substantial new share repurchase program, signals confidence in its long-term value creation. For investors, Morningstar represents a compelling opportunity, driven by its robust business model, technological leadership, and strategic vision to empower investors in an increasingly complex financial world.