Morningstar (MORN) Q3 2026 earnings review
Morningstar profit rises 26%, but PitchBook growth slows to 4%
Morningstar, the investment research and credit ratings provider, grew profit rapidly even as its flagship private-market software slowed. Revenue from businesses owned a year ago rose 7%, while operating profit excluding one-offs jumped 26% because bonus accruals fell and headcount dropped 5%. Heavy bond issuance and rising retirement account values carried top-line growth, and share buybacks lifted profit per share.
| Sales from businesses owned a year ago | +6.8% +7.8% excluding discontinued products |
|---|---|
| Reported revenue | $672.1M +8.9% from a year ago |
| Operating margin, excluding one-offs | 28.3% 24.4% a year ago |
| Profit per share, excluding one-offs | $3.48 +36.5% from a year ago |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because the split between booming credit and asset fees and sluggish desktop software licenses persisted. Chief executive Kunal Kapoor reported surging usage of Morningstar's data feeds inside client AI tools, and enterprise data sales accelerated. The bad news: underlying revenue growth at PitchBook slowed to 4%, its profit dipped, and management folded data-connector users into its user count to report 5% seat growth.
The question now is whether selling raw data feeds for AI tools and index benchmarks will earn enough to offset stagnant desktop seat licenses. Supporters point to accelerating data feed sales and $3.6 trillion linked to Morningstar indexes, while skeptics note that core subscription growth is below 4% and buybacks were funded with debt. Fourth-quarter PitchBook growth and contract billings will show which force is winning.
🐂 Bull Case
Lower Bonus Accruals and Headcount Cuts Lift Margins
"We continue to put important product enhancements in the hands of our clients while delivering profitable growth," chief executive Kunal Kapoor said. Operating margin rose 4.2 percentage points from a year ago to 24.9%, and operating margin excluding one-offs climbed 3.9 percentage points to 28.3%. The financial data provider held total operating expense growth to 3.0% while reported revenue grew 8.9%.
- Cost of revenue (the direct cost of compiling data and running products): 35.8% of revenue, down 3.3 percentage points from a year ago by our math
- Sales and marketing expense: 17.5% of revenue, down 1.2 percentage points by our math
- Permanent full-time employees: 10,610, down 4.9% from a year ago and down 2.0% from last quarter
The company said compensation costs fell $7.9 million because of a "decline in bonus expense compared to the relatively high level in the prior-year period", even after absorbing $6.9 million more in severance pay. Buying the Center for Research in Security Prices (CRSP, an equity index provider acquired in February) also lifted margins. What to watch: fourth-quarter severance and bonus expenses in the full-year report. A rebound in bonus accruals next year would test how much of this margin gain is permanent.
Bond Issuance and Market Gains Carry the Top Line
Morningstar's bond ratings and retirement businesses did the heavy lifting again this quarter. Sales from businesses it owned a year ago grew 6.8% across the company, or 7.8% excluding discontinued products. Without the credit ratings and retirement divisions, underlying sales growth across the remaining segments was much slower.
- Morningstar Credit (bond ratings and analytics): $107.8 million, up 19.1% in underlying sales, topping $100 million for a fourth straight quarter
- Morningstar Retirement (401(k) managed accounts and advice): $41.5 million, up 21.3% on rising stock markets and inflows to advisor-managed accounts
- Morningstar Wealth (model portfolios for advisors): profit excluding one-offs more than doubled to $7.4 million (12.5% margin) after shutting down the legacy Morningstar Office software
New bond issuance revenue in Credit rose 28.5% from a year ago, driven by corporate debt and US mortgage-backed and asset-backed securities. What to watch: fourth-quarter Credit revenue against last year's $105.3 million peak. Holding above $100 million against that tougher comparison would show bond ratings demand is holding up.
Direct Data Feeds and CRSP Index Assets Gain Traction
While desktop user counts barely moved, enterprise clients bought more automated data feeds and index benchmarks. Underlying sales in Morningstar Data, which sells raw investment data feeds to institutions, rose 7.8% to $114.1 million, accelerating from 4.2% growth last quarter. Kapoor said roughly 28% of PitchBook and Morningstar Direct client firms have connected to the company's model context protocol (MCP) servers, which feed Morningstar data directly into external AI tools.
Morningstar Indexes revenue jumped 78.9% to $39.0 million with the addition of CRSP, and grew 11.8% on an underlying basis. Assets linked to Morningstar indexes reached $3.6 trillion, including $3.3 trillion tied to CRSP benchmarks. In October, the firm also launched Direct AI, an assistant inside its flagship workstation that 3,500 users have tried. What to watch: when management introduces usage-based pricing for AI data connectors, and whether Corporate and All Other losses ($38.3 million this quarter) narrow as CRSP scales.
🐻 Bear Case
Morningstar Redefined PitchBook Users as Growth Slowed to 4%
PitchBook, Morningstar's private-market data and software division, is the group's second-largest segment at $175.6 million in quarterly sales. Underlying revenue growth at PitchBook has slowed every quarter for two years, dropping from 12.7% in late 2024 to 4.0% this quarter. Segment profit excluding one-offs fell 1.1% to $52.3 million as margin shrank 1.5 percentage points to 29.8% on higher sales commissions, severance, and AI cloud costs.
The company blamed "softness in the corporate and venture capital client segments, which continued to experience higher churn". At the same time, management changed how it counts PitchBook users. "As part of a large renewal, we added a meaningful number of new licensed users with access to the PitchBook Data Premium Connector in the third quarter who are not concurrently PitchBook platform users," Kapoor wrote.
Adding those connector-only users lifted PitchBook's reported user growth to 4.6% (118,684 users), masking flat seat trends on the core platform. Meanwhile, seat licenses at Morningstar Direct, the flagship workstation for public-market asset managers, were flat at 18,814 (+0.2% from a year ago). What to watch: whether PitchBook's underlying revenue growth falls below 4% next quarter, which would show that data feed deals are not fully offsetting desktop cancellations.
Debt-Funded Buybacks Tripled Net Debt and Doubled Interest Costs
Morningstar bought back $100.0 million of stock in the third quarter and $500.0 million over the first nine months of 2026. Supporters point out that those repurchases cut the diluted share count by 10.6% from a year ago to 37.8 million, turning a 26.1% rise in net income into 41.0% growth in earnings per share ($3.06).
However, the company paid for those buybacks and the $359.6 million CRSP acquisition by borrowing. Total debt stands at $1,678.7 million (1.8 times EBITDA), up from $848.9 million a year ago, and net debt more than tripled to $1,154.1 million by our math. As a result, quarterly net interest expense more than doubled to $17.6 million from $7.0 million a year ago. What to watch: fourth-quarter debt repayments versus share buybacks, which will show whether management prioritizes paying down credit lines.
Private Credit Exposure Grew while Tech Costs Kept Rising
Several standing risks remained active this quarter across credit ratings, technology spending, and environmental ratings.
- Private credit exposure: Kapoor disclosed that "unpublished ratings accounted for roughly 30% of total credit ratings-related revenue" in the first nine months of 2026, up from roughly 25% in 2025, increasing exposure if middle-market defaults rise.
- Cloud and AI costs: technology infrastructure expenses rose $7.1 million in the quarter from moving off company-owned servers and building AI tools, following a $6.7 million increase last quarter.
- Morningstar Sustainalytics (environmental and governance ratings): revenue fell 5.9% on an underlying basis to $26.3 million, or 1.7% excluding the discontinued second-party opinions product.
What to watch: whether unpublished credit ratings growth slows if private-credit defaults pick up, and whether quarterly cloud cost increases begin to level off in 2027.
💲 Other KPIs
Current deferred revenue — cash customers have paid upfront for subscriptions not yet delivered — rose 6.5% from a year ago by our math, compared with 5.8% growth in the second quarter. It fell $28.1 million from last quarter on normal third-quarter billing seasonality and still trails reported revenue growth of 8.9%.
Free cash flow — operating cash flow minus $35.3 million of capital spending — slipped 2.9% from a year ago after jumping 96.3% in the second quarter. Working capital added $17.3 million to cash flow this quarter versus $56.3 million a year ago. Over the last 12 months, 70.6% of operating profit excluding one-offs turned into free cash flow.
Combined client assets in Retirement ($333.9 billion, up 12.1%) and Wealth ($64.8 billion, down 8.5%) rose from $375.0 billion last quarter. Wealth assets fell from a year ago because a Japanese client left at the end of 2025, though that client generated almost no revenue; core Wealth model portfolio assets grew 12.1% to $56.5 billion.
❓ Key Questions
How many PitchBook users are on the core platform?
Morningstar added standalone Data Premium Connector users from a large renewal to PitchBook's user count this quarter. Without the exact number of connector-only additions, investors cannot tell whether core PitchBook desktop seats shrank.
What is Morningstar Indexes' profit margin after buying CRSP?
Indexes revenue jumped 78.9% to $39.0 million with CRSP, and linked assets reached $3.6 trillion. Because Morningstar nets Indexes profit inside Corporate and All Other, the return on the $359.6 million acquisition remains hidden.
How are AI data connectors priced and billed today?
Tool calls through the PitchBook connector rose from 1 million in July to 13 million in October, and 28% of Direct and PitchBook clients have accessed MCP feeds. Management has not said how much revenue those calls generate.
What is the target debt ratio before buybacks slow?
Morningstar has spent $500 million on buybacks this year while carrying $1.68 billion in debt (1.8 times EBITDA) and paying $17.6 million in quarterly net interest. Investors need to know how much debt paydown is planned for the fourth quarter.