Fair Isaac produces the FICO score, the unavoidable benchmark for credit risk assessment in the United States, with exceptional profitability.
Analysis
The housing regulator decided that Fannie Mae and Freddie Mac would also accept VantageScore, and Rocket Mortgage switched immediately. The group thus loses its ability to raise prices without losing customers. The deeper point is that a regulatory monopoly is fragile in the face of a political decision.
Opportunity
The opportunity is diversification into decision software and uses beyond mortgages. The risk is a gradual erosion of price per score and market share.
Investor outlook
Negative outlook. The annuity thesis is challenged; valuation will need to reflect more normal and more competitive growth.
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