Miguel Maeztu @AzeriaInvest: "FICO: the moat with pricing..."

Luxembourg

FICO: the moat with pricing power and its erosion Within the investable universe I monitor, I would argue that FICO has the largest moat that comes to mind. In a nutshell, it provides a credit score to US borrowers and lenders. With decades of credit data, its score becomes incredibly valuable. If someone wants a mortgage or a car loan, besides the thousands of USD its going to spend it banking fees, notary and registration fees, house works... FICO provides a score for a few cents... up to 2018, when it costed like USD 0.6 cents. Now it costs USD 10. In less than 10 years the cost of a FICO score has almost 20x. And it is still used as a key input of credit score, just making a lot more money out of it. It shows, when a company has a product that consumers (lenders and borrowers) need, it can push its price up a lot. Price elasticity is almost zero. The business owner's dream. What happened? FICO has pushed it a bit too far. The regulatory landscape has shifted and now there is a competitor, VantageScore. In 2025, with the FHFA (which oversees Freddie Mac and Fannie Mae) approval it ended the decades-long monopoly of FICO. Pushing price has its limitations, even for a business such as FICO. As of today, since many lending models are built around FICO, it sill retains monopoly, both in general and mortgage lending at over 90% rates. But, at a cost 10x lower, VantageScore should be able to take a bit off FICO. Even the largest moats have pricing power limitations. Directly or indirectly. This is really an interesting case and one I look forward to monitoring to see how FICO manages far cheaper competition. A decrease in the price of the FICO score would be a major defeat. The image below depicts the price of a FICO score and its share price. The business is no longer price at sky-high levels of 60-70x EBIT, rather at still premium levels of 25x-30x EBIT. 𝘋𝘪𝘴𝘤𝘭𝘢𝘪𝘮𝘦𝘳: 𝘵𝘩𝘪𝘴 𝘪𝘴 𝘵𝘩𝘦 𝘴𝘰𝘭𝘦 𝘰𝘱𝘪𝘯𝘪𝘰𝘯 𝘰𝘧 𝘵𝘩𝘦 𝘢𝘶𝘵𝘩𝘰𝘳, 𝑢𝑛𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑡𝑜 𝑚𝑦 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑟 𝘢𝘯𝘥 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘢𝘥𝘷𝘪𝘤𝘦. 𝘐 𝘮𝘪𝘨𝘩𝘵 𝘣𝘦 𝘪𝘯𝘷𝘦𝘴𝘵𝘦𝘥 𝘪𝘯 𝘵𝘩𝘦 𝘴𝘵𝘰𝘤𝘬𝘴 𝘮𝘦𝘯𝘵𝘪𝘰𝘯𝘦𝘥. 𝘋𝘰 𝘺𝘰𝘶𝘳 𝘰𝘸𝘯 𝘳𝘦𝘴𝘦𝘢𝘳𝘤𝘩 𝘢𝘯𝘥 𝘪𝘧 𝘶𝘯𝘴𝘶𝘳𝘦, 𝘴𝘦𝘦𝘬 𝘱𝘳𝘰𝘧𝘦𝘴𝘴𝘪𝘰𝘯𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦. 𝘊𝘰𝘱𝘺 𝘛𝘳𝘢𝘥𝘪𝘯𝘨 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘢𝘥𝘷𝘪𝘤𝘦 | 𝘊𝘢𝘱𝘪𝘵𝘢𝘭 𝘢𝘵 𝘳𝘪𝘴𝘬 | 𝘗𝘢𝘴𝘵 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦 𝘥𝘰𝘦𝘴 𝘯𝘰𝘵 𝘨𝘶𝘢𝘳𝘢𝘯𝘵𝘦𝘦 𝘧𝘶𝘵𝘶𝘳𝘦 𝘳𝘦𝘴𝘶𝘭𝘵𝘴 $FICO (Fair Isaac Corporation) $SPX500 $JPM (JPMorgan Chase & Co) $C (Citigroup) $WFC (Wells Fargo & Co)

Not investment advice. The author may have financial interests in the mentioned instruments.