🔥 FICO is down about 20% today. What happened and is the investment thesis changing? $FICO

Fair Isaac ($FICO) is taking a brutal hit today.

The stock has dropped about 20%, from levels around $1,120 to about $900.

And this time it's not because of a weak quarter, bad results, or a business collapse.

The reason is VantageScore.

Today's news significantly increases competition in the US mortgage scoring market, exactly where FICO has historically had an extremely strong position.

What does FICO actually do?

Most people know FICO mainly thanks to the FICO Score.

It's a credit score that helps banks and other financial institutions estimate a client's credit risk.

For mortgages, consumer loans, or credit cards, FICO is deeply embedded in the US financial system.

And that was a huge moat.

If a bank needed a credit score for a mortgage, FICO was practically the standard.

That allowed the company to do something investors simply love:

👉 raise prices with minimal additional costs.

The result?

The Scores segment achieved an operating margin of around 90%.

Moreover, in the last quarter, a large part of FICO's growth came precisely from mortgage scoring and mainly from higher prices.

That was enormous strength.

But also a risk.

What changed today?

The US mortgage system is opening up more to the competing VantageScore 4.0.

That means lenders will no longer be as dependent solely on FICO.

And that's an important change for FICO.

It doesn't necessarily mean VantageScore will take half the market tomorrow.

In my opinion, the bigger risk lies elsewhere.

Pricing power.

Until now, FICO could practically say:

"The price of the score is higher."

And the customer had a very limited alternative.

Now they can respond:

"We have VantageScore."

And exactly this can gradually slow down further aggressive price increases.

How big could the impact be?

Here, in my opinion, we need to separate panic from reality.

I don't think FICO will become a bad business overnight.

FICO has decades of history, a strong brand, enormous integration into banking processes, and lenders have their models built precisely on its score.

Switching to a competitor is not just a matter of clicking a button.

Moreover, FICO is responding.

The company is pushing the new FICO 10T model, adjusting pricing, and trying to remain competitive in the new environment.

For me, there are currently three possible scenarios:

🐂 Bull case: VantageScore gains only a small part of the market. FICO remains dominant, FICO 10T gains traction, and the company continues to grow decently.

⚖️ Base case: VantageScore gradually takes part of the market and FICO loses some pricing power. Earnings growth slows, but the company remains extremely profitable.

🐻 Bear case: VantageScore gains significant market share, a price war breaks out, and it turns out FICO wasn't as irreplaceable as the market assumed for years.

For now, I believe most in the middle scenario.

And what about valuation?

This is where the situation starts to get interesting.

FICO was relatively recently around $2,000.

Today we are at about $900.

That means a drop of about 55% from the peak.

At the current price, the market definitely is not pricing in a perfect monopoly.

On the contrary, there is already a good dose of fear in the price.

And here, in my opinion, is the key question:

Can FICO, even with VantageScore, earn significantly more per share in 5 years than today?

For now, I think yes.

But I would no longer count on the company raising prices as aggressively for the next 10 years as it has so far.

That would be too optimistic.

My view

Today's drop is not entirely unjustified in my opinion.

The risk to the thesis has really increased.

But at the same time, I don't think today's −20% means FICO is suddenly a bad business.

Rather, in my opinion, it is changing from:

"almost untouchable monopoly"

to

"dominant player facing real competition for the first time."

And that's a big difference.

At a price around $900, FICO is starting to look very interesting to me.

Not as a risk-free buy.

But as a company where today's panic may be bigger than the long-term impact on earnings.

I opened a position just yesterday.

So I fully enjoyed today's −20%. 😅

However, I don't plan to close it in a panic.

Rather, I will watch how quickly VantageScore actually starts gaining market share and whether the pressure shows mainly in prices or also in FICO's volumes.

What do you think? Is FICO after a ~55% drop from its peak an opportunity, or the beginning of the moat's breakdown? 👇