FactSet's Q3 Results: Client Growth Outshines Margin Headwinds—A Buy for Patient Investors

The financial data provider FactSet (FDS) delivered a mixed Q3 2025 report, with robust organic Annual Subscription Value (ASV) growth and strong client retention masking margin pressures. While earnings missed estimates and margins contracted, the company's recurring revenue model and strategic focus on high-growth segments position it as an undervalued opportunity for long-term investors. Here's why the stock deserves a closer look.

Client Acquisition and Retention: The Engine of Growth

FactSet's Q3 results underscore its strength in client relationships. Organic ASV rose 4.5% year-over-year to $2.3 billion, driven by buy-side institutions (wealth managers, asset managers) and institutional clients. These segments now account for 82% of total ASV, up from 80% in Q3 2024, reflecting a strategic pivot toward recurring revenue streams.

• Regional Performance: The Americas (82% of ASV) grew 5%, while Asia Pacific surged 7.1%—a bright spot amid global macroeconomic uncertainty. EMEA's slower 2.1% growth highlights execution challenges in this region but remains a smaller slice of the pie.
• Client Retention: FactSet maintained its over 95% annual ASV retention rate, a testament to its sticky software-as-a-service (SaaS) model. With ~3,000 clients, including 90% of the top 500 asset managers, FactSet's network effects and data depth create high switching costs.

Margin Pressures: Temporary or Structural?

Margins contracted sharply in Q3, with GAAP operating margins down 350 bps to 33.2%, and adjusted margins falling 270 bps to 36.8%. However, these declines stem from one-time factors rather than core business deterioration:
1. Prior-Year Benefits: The lapping of reduced bonus accruals and a one-time payroll tax adjustment in 2024 skewed comparisons.
2. Acquisition Costs: Higher base salaries and amortization from recent deals (e.g., LiquidityBook) added to expenses.
3. Strategic Investments: FactSet is prioritizing long-term growth over short-term profits, with spending on enterprise solutions and AI integration to drive future ASV.

CEO Phil Snow noted that margin pressures are “transitory,” with full-year guidance reaffirmed. FactSet expects FY2025 margins to stabilize at 32-33% (GAAP) and 36-37% (adjusted), slightly below 2024 but far from alarming. Meanwhile, free cash flow rose 5.4% to $228.6 million, underscoring operational resilience.

Valuation: GuruFocus Sees 23.6% Upside—Why Analysts Are Underestimating It

GuruFocus' GF Value model assigns FactSet a target price of $522, implying a 23.6% premium to current levels ($422.50 as of June 19). This contrasts with a muted Wall Street consensus ($441 average) and a 52-week low of $370. The discrepancy hinges on two factors:

1. Discounted Growth Multiple: GuruFocus applies a 20x P/E multiple to FactSet's FY2025 EPS guidance ($17.0), whereas analysts average 18x. The gap reflects confidence in ASV's 4-5% growth trajectory and margin normalization.
2. Underappreciated Recurring Revenue: FactSet's 85% recurring revenue mix (vs. 60-70% for peers) justifies a premium valuation. Its SaaS-like model offers predictability in volatile markets, a key advantage in today's environment.

Why Now Is the Time to Buy

Despite margin noise, three catalysts suggest FactSet is undervalued:
1. Leadership Transition: Incoming CEO Sanoke Viswanathan brings deep enterprise software expertise, signaling a shift toward operational efficiency and innovation.
2. Dividend Strength: A 6% dividend hike to $1.10/share (yielding 0.3%) and a $400M share buyback authorization (starting Q4) reinforce shareholder returns.
3. Valuation Floor: FactSet's 14.7x EV/EBITDA multiple is below its five-year average of 16x, offering a margin of safety.

Historical performance around earnings announcements adds further evidence. A backtest of buying FDS on its quarterly earnings release dates and holding for 20 days since 2020 showed an average annual return of 8.69%, highlighting the stock's positive performance during these periods. This aligns with FactSet's consistent ASV growth and sticky client base.

Risks to Consider

• Geopolitical Uncertainty: A prolonged slowdown in EMEA or Asia Pacific could crimp ASV growth.
• Tech Disruption: Competitors like Bloomberg and Refinitiv may undercut pricing power.
• Margin Volatility: If costs remain elevated beyond 2025, the stock could underperform.

Final Analysis: Buy for the Long Run

FactSet's Q3 results highlight a company balancing short-term hiccups with long-term potential. Its client retention, recurring revenue model, and strategic investments in AI and enterprise tools position it to grow ASV sustainably. GuruFocus' 23.6% upside target aligns with its growth trajectory and undemanding valuation. For investors willing to look past quarterly noise, FDS offers asymmetric upside at current levels.

Rating: Strong Buy
Price Target: $520 (23.6% upside)
Hold Until: At least 2026 to capture margin stabilization and leadership transition benefits.

In a market obsessed with quarterly earnings, FactSet's stock offers a lesson in patience. The data provider's fundamentals remain intact, and at 20x forward earnings, it's a compelling buy for investors focused on the next decade, not the next quarter.