🎯 Fair Isaac: A 114-page Deep Dive
Highest margins in the industry
Hi Partner 👋
Today, you will receive a full investment case of 114 (!) pages about Fair Isaac Corporation
This is a wonderful company that definitely deserves your attention.
Compound with René
This investment case was made by Compound with René.
He was so kind to share the investment case with us.
You can check out his work here:
Fair Isaac Corporation - General Information
👔 Company name: Fair Isaac Corporation
✍️ ISIN: US3032501047
🔎 Ticker: FICO
📚 Type: Oligopoly
📈 Stock Price: $1,230.0
💵 Market cap: $28.5 billion
📊 Average daily volume: $457.9 million
How does Fair Isaac make money?
Fair Isaac (FICO) makes money mainly by charging lenders, banks, and credit bureaus fees every time they pull a FICO credit score to evaluate someone for a loan, credit card, or mortgage. It also earns revenue by selling software and analytics tools that businesses use to make decisions about fraud detection, lending, and customer management.
This is a very extensive report.
In case you don’t have time to read it all right now, let’s give you the highlights first.
Three main takeaways
Here are the 3 most important takeaways:
1. Industry Standard Scores
FICO scores are used in 90% of U.S. lending decisions and over 95% of all mortgage-backed securities.
2. Strong Margins
FICO has strong structural advantages that give them the highest margins in the industry.
3. FICO is a Cannibal Stock
Because FICO is so profitable, they return quite some capital to shareholders through buybacks.
Conclusion investment case
René wrote a 114-page deep dive about FICO. Let’s summarize it for you.
FICO is one of the best compounding machines in history.
They operate a simple, capital-light business.
The company licenses its credit scoring technology to lenders and credit bureaus.
Every time a mortgage, auto loan, or credit card application is processed, FICO earns a small fee.
This makes FICO a tollbooth on the U.S. financial system.
The business benefits from:
High switching costs
Institutional inertia
Decades of trust
FICO scores are deeply embedded in underwriting systems and the U.S. financial system.
The company is also very profitable.
The company has strong margins, high returns on capital, and has reduced its share count by 30% over the past decade.
While the opportunities are attractive, there are also concerns.
Competition from VantageScore
Regulatory pressure
Advances in AI could disrupt their business model
Management has responded through FICO 10T, direct licensing initiatives, and investments in its cloud platform.
Onepager
Here are the basics of Fair Isaac Corporation (click on the picture to expand):
Quality Score
Every company gets a Quality Score based on 15 metrics.
Finally, the company gets a ‘Total Quality Score’ which is calculated by taking the sum of the score of all 15 metrics and dividing it by 15.
As you can see in the table below Fair Isaac Corporation gets a Total Quality Score of 7.8/10.
Full Investment Case
You can download the full investment case here:
Are we buying?
So are we buying FICO? Is it worth a spot in Our Portfolio?
Here’s the short answer…
