To The Moon

America’s favourite three-digit number became an extraordinary business. Then extraordinary pricing gave customers a reason to find another number.

Fair Isaac Corporation has spent decades achieving something most companies can only dream about: becoming so deeply embedded in an industry that buying its product feels less like a commercial decision and more like paying a tax.

The FICO score sits inside the plumbing of American credit. Banks understand it, regulators recognise it, investors model around it and mortgage infrastructure has been built around it. That institutional entrenchment created formidable pricing power.

But I think FICO now presents investors with a fascinating paradox.

Its greatest competitive advantage may also have created its greatest threat.

By monetising its indispensability ever more aggressively, FICO has given lenders, competitors and policymakers an increasingly powerful reason to weaken that indispensability.

Extraordinary pricing power eventually makes alternative roads worth building

The World’s Best Tollbooth

FICO’s economics are almost absurdly attractive.

In the latest quarter, revenue jumped 26% to $674 million while net income reached $237 million. Scores revenue surged 41% to $459 million and represented 68% of total revenue.

The remarkable part is how little volume growth was required.

Mortgage origination score volumes increased only in the low single digits, yet mortgage origination revenue climbed 97%. That is pricing power wearing a very expensive suit.

The reason is straightforward. Even substantially higher scoring costs remain tiny compared with the economics of originating a mortgage. Nobody abandons a $400,000 home purchase because one component of the underwriting process costs several dollars more.

That gives $Fair Isaac(FICO)$ an enviable asymmetry: its product can be enormously valuable to the system while remaining relatively inexpensive per transaction.

For the first nine months of fiscal 2026, revenue increased 27% to $1.88 billion. Scores revenue rose 45% to $1.24 billion. FICO is now guiding towards approximately $2.53 billion of full-year revenue.

This is not merely a good business. It is a masterclass in monetising a bottleneck.

Unfortunately, bottlenecks become unpopular when everyone realises who owns them.

Scores increasingly carry the weight—and controversy—of FICO’s economics

The Moat Now Has a Drawbridge

The biggest change to the FICO investment case is VantageScore 4.0.

As of September 2026, approved lenders can use VantageScore 4.0 for eligible mortgages sold to Fannie Mae and Freddie Mac. Classic FICO remains permitted, with FICO 10T representing FICO’s next-generation alternative.

That sounds procedural. Economically, it is anything but.

For decades, FICO benefited from something stronger than brand loyalty: institutional necessity. Now lenders have an authorised alternative.

Yet here the bull case deserves considerably more respect.

FICO management said during its third-quarter earnings call that it had not seen meaningful volume losses from lenders using VantageScore alongside FICO. That is important because regulatory permission and commercial adoption are two very different things.

Credit models feed underwriting systems, pricing models, compliance frameworks and mortgage-backed securities infrastructure. Replacing a benchmark deeply embedded in risk management is rather more complicated than changing coffee suppliers.

There is therefore no evidence yet of lenders fleeing FICO en masse.

But displacement is not necessary for the economics to change.

VantageScore only needs enough adoption to give lenders bargaining power. FICO could retain dominant market share while losing some ability to dictate price. For a company whose recent growth has depended heavily on pricing rather than volume, that distinction matters enormously.

The bull argument says inertia protects FICO. The bear argument says choice eventually changes the price of that inertia.

Both can be true.

Competitive Analysis: The Enemy Within

VantageScore is an unusual competitor because it is jointly owned by Equifax, Experian and TransUnion—the three credit bureaus sitting at the heart of America’s credit-reporting infrastructure.

This makes the competitive landscape deliciously awkward.

The bureaus historically helped distribute FICO scores. Now they collectively own the principal alternative capable of challenging FICO’s mortgage dominance.

FICO has responded intelligently with its Mortgage Direct License Program, restructuring how mortgage scores are licensed and introducing performance-based economics tied partly to closed loans.

That tells me something important.

FICO is not behaving like a monopoly that believes nothing has changed. It is adapting its distribution model before competition becomes overwhelming.

Meanwhile, VantageScore can compete on price and potentially broader consumer coverage. FICO possesses the stronger installed base, decades of familiarity and enormous institutional inertia.

VantageScore possesses something FICO has rarely confronted: regulatory acceptance combined with an economic incentive for customers to experiment.

That combination is far more dangerous than another clever algorithm.

The Balance Sheet Nobody Talks About

Here is where the story becomes particularly interesting.

FICO is generating enormous cash—and borrowing heavily while returning even more capital to shareholders.

At June 2026, total debt stood at approximately $5.58 billion, carrying a weighted average interest rate of 5.64%. During the third quarter alone, FICO repurchased approximately $1.96 billion of shares, including an accelerated repurchase financed partly through a new $1.5 billion term loan.

Over the first nine months, repurchases exceeded $3 billion.

Management is effectively leveraging one of America’s strongest intangible franchises to buy back its own equity aggressively. If earnings continue compounding, retiring shares can create substantial per-share value.

But leverage changes the equation.

A business with minimal debt can absorb a regulatory shock, pricing reset or competitive transition comfortably. A business carrying billions of dollars of debt while repurchasing shares has less room for unpleasant surprises.

There is an additional irony. $Fair Isaac(FICO)$ has borrowed heavily to buy its shares precisely while the market is questioning whether the moat supporting those shares is narrowing.

That may ultimately prove brilliant.

It is certainly not timid.

The Business Behind the Score

Investors can easily overlook FICO’s second act.

Software generated $215 million of latest-quarter revenue, but the more interesting number is Platform annual recurring revenue, which reached $413 million, up 62%. Platform ARR has now overtaken non-Platform ARR for the first time.

Platform net retention of 148% is particularly impressive, indicating customers are materially expanding spending.

This matters because FICO Platform could gradually reduce dependence on score pricing.

But I would not award diversification points prematurely. Software revenue increased only 2% in the latest quarter because rapidly growing Platform products are replacing declining legacy products.

FICO is successfully rebuilding the aircraft.

It just happens to be doing so while flying it.

Half the Price, Same Monopoly?

This is where the investment case becomes genuinely uncomfortable—for bears as well as bulls.

At $879.62, FICO shares sit roughly 56% below their 52-week high of $1,998. The company now trades at approximately 25.5 times trailing earnings and 17.5 times forward earnings.

The monopoly survived. Its once-monopolistic valuation decidedly did not

Those numbers matter enormously.

FICO is no longer valued as though its monopoly economics are beyond challenge. A substantial amount of fear has already entered the price.

Yet this is not obviously bargain territory either. The market is still assigning meaningful value to continued earnings growth, exceptional margins and the durability of the Scores franchise while FICO carries substantially greater financial leverage.

That creates an unusual setup: the fundamental risk has increased considerably, but the valuation risk has fallen considerably.

A great business can be a poor investment at the wrong price. Equally, a wounded monopoly can become interesting when everybody has already noticed the wound.

Pricing Power Has a Price

I see FICO neither as a monopoly about to collapse nor as the untouchable compounder investors once believed it to be.

The evidence currently favours resilience. Management reports no meaningful VantageScore-related volume erosion, Scores revenue is booming, Platform is growing rapidly and FICO remains deeply embedded throughout American lending.

But the structural challenge is real.

The metric I would watch most closely is therefore not FICO’s market share. It is the relationship between mortgage score volume and mortgage score revenue.

If revenue continues dramatically outrunning volume as VantageScore adoption develops, FICO’s pricing moat remains formidable. If that gap begins narrowing, competition will be doing its job long before FICO visibly loses the market.

Dominance remains valuable. Exclusivity was always worth considerably more

That is the twist in this story.

FICO spent decades proving that the best business is owning the tollbooth.

At 17.5 times forward earnings, investors are no longer being asked to pay as though the road belongs to FICO forever.

Now the question is whether the new detour attracts any traffic.

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