I have a very hard time having any sort of predictive power for FICO when just taking a look at the data. And don't see the compelling reason to buy at these levels. This company has been essentially a stable monopoly for decades, the sentiment on the market is that a large portion of their share is about to be relinquished.
From the 2025 10k, "The FICO® Score, used by 90% of top U.S. lenders, remains the standard for use in mortgage underwriting and pricing, investor credit risk and prepayment models, capital requirements, credit agency ratings, and pricing of mortgage-backed securities."
Then quarters later, in the latest investors presentation FICO still cites this figure of 90% of the top US lenders using their scores segment.
Additionally the growth has been extreme in the scores section of the business being 68% of the revenue of the business in Q3 26 with a growth of 41% YoY.
So at first look maybe this large portion of their market share is not being given up?
In my opinion these figures really aren't that valuable for understanding the value of the business right now. Because the valuation of FICO was largely built into their moat that was set up through the GSE mandate of using FICO to sell a mortgage through Freddie and Fannie.
as of September 9th lenders that are selling loans to Freddie and Fannie (about 70% of the market) can use Vantage 4.0 instead of FICO. TransUnion (one of the three firms that own this product) has a cost of 99 cents per score through 2028 as a price guarantee, which is much cheaper than that of FICO score of $10 per score or $4.95 + a $33 funded loan fee if the loan closes.
The problem even beyond this idea of FICO getting undercut is that the monopoly is now a duopoly. There could be bias towards FICO if the scores are the exact same price under this duopoly but because Vantage 4.0 has the large firms migrating to start using it, like Rocket, this could mean FICO has to drop price, possibly commoditizing the product into the future?
Rocket is already looking to make Vantage their default, starting in Q4 2026. UWM, the largest lender by dollar volume, already pulls both scores on every loan and uses the better one
Though keep in mind that the top ten lenders only account for 23.5% of all 2025 originations a large portion of this market is thousands of smaller lenders. So understanding how they adapt I assume will be essential. KBW actually believes that most smaller firms are still currently pulling from FICO for all of their scores.
The problem here is mortgage origination revenue rose 97% in the latest filing (which obviously contributes to the growth rate) but during this time there was only a single digit growth in volumes of mortgage origination. This means growth came from price, the exact thing that appears is going to make FICO suffer into the long run. Because the Rocket shift is occurring into Q4 2026, FICO has been able to have a higher degree of growth. But more importantly, approval has become much more accessible for Vantage 4.0 in September. Meaning this is when the changes begin, thus 2027 will be the affected year.
What makes the Vantage 4.0 such a deadly weapon is it is backed by Equifax, TransUnion, and Experian. These are credit bureaus meaning they aren't selling Vantage 4.0 as the product but rather the data for each loan which is a three page report which resellers estimate at about $90, while the credit score, which FICO and Vantage 4.0 are operating with are a lower price tag. But I have a question here. Would this allow Equifax, TransUnion, and Experian to have the moat in this industry as they use the Vantage Score as something that is actually just a bridge to their data?
based on 62% of scores being the mortgage segment and scores making up 68% of the business (based on Q3 2026 numbers), the mortgage part of the business should make up 42%.
I feel this model is SO hard to understand with all of these givens there cannot be a way to accurately understand how the market share of FICO will dissolve in the coming years, nor the price cuts that seem to be needed to keep market share. It seems too hard a decision, no? I guess the alpha here is saying that the situation is not going to be as bad as expected, which with all of these small lenders could be an attractive position since many of them may take a while to adapt. But, with such pressure on the business and the idea that the business was likely trading at a premium in the past what is your reasoning for investment? You don't have to be a holder of FICO to share insight just looking for any explanation here.
With all of this I would ask if you are a holder of FICO why you find it compelling but more importantly what tools you implemented to have predictive power in terms of market share relinquishment, and repricing? What am I missing, that I should have taken into account? Additionally whether this is something evident from the data or your own thesis?
My goal is trying to learn more about strategies other investors are using here to get a higher degree of understanding, I am still a rookie as I am 19 so I am looking for any ideas or strategies that you find compelling here!