Fair Isaac Corporation reported earnings last Thursday, once again delivering very solid numbers (especially on a YoY basis). However, the unusually high expectations baked into the stock price do seem to be catching up with the company. I have been saying for some time that the likelihood that the stock price corrects (perhaps violently) is as high as it has been in several years.
On a high level, since the beginning of 2022 the company has performed extraordinarily well business-wise, and has had also most every negative catalyst resolved in its favour. I have seen the following factors play out in real-time:
1). The resolution of the FHFA’s ruling on what the Score/mechanism would be for a conforming Fannie and Freddie mortgage squarely in FICO’s favour,
2). The unusually strong performance of Software (especially the growth in Platform ARR) after a period of investment and divestiture of other software products. This saw an inflection of Software operating margins from ~10% to ~30% in the last 3 years,
3). The market widely forgot (or perhaps was unaware) of how the FICO score has annual CPI linked pricing escalators independent of the now (in)famous “Special” pricing actions. This added a additional 400-700bps of price taking annually over the last couple of years,
4). The company has passed through extremely aggressive price hikes in Mortgage, resulting in financial results that have completely defied the large volume declines in most of its end markets.
The performance in the share price has been nothing short of breath-taking:
Keep reading with a 7-day free trial
Subscribe to Buyback Capital to keep reading this post and get 7 days of free access to the full post archives.