In 2012, Grab was born from a simple, but ambitious business plan aimed at tackling one of the most unreliable and unsafe taxi systems in the world – Malaysia’s. Fast forward to today, and Grab has evolved from that small idea into effectively the “operating system” for daily life in (most of) Southeast Asia.

And Grab is not just another app. In Southeast Asia, Grab is more than a name – it’s become a verb for many. People say, “It’s raining; let’s just Grab to the mall instead of walking” or “I’m too tired to cook, should we Grab some Thai food?” without thinking twice. And it doesn’t stop there – Grab has mastered the art of creating habits, seamlessly integrating itself into the daily lives of millions of people who now rely on it for everything from getting from point A to point B to paying bills to online shopping.

Grab’s story is also a survival narrative that most tech companies would envy. In 2018, Grab managed to outmaneuver the global giant Uber in its home region and, eventually, when Uber basically gave up, acquired Uber’s Southeast Asian operations in a unique deal. That was a pivotal moment in Grab’s history, solidifying Grab’s dominance and ensuring that Uber’s exit from Southeast Asia would make Grab the undisputed leader in ride-hailing and delivery services.

Fast forward to 2025, and Grab hit a major milestone: profitability. After years of burning through capital in pursuit of growth, Grab reached its first full year of net profit in 2025 – $200 million in the black. This marks a significant inflection point, where the company is transforming from a “growth-at-all-costs” startup-like-business into a more disciplined, profitable growth powerhouse with a clear path to long-term value creation.

But here’s the thing: Grab’s story is far from over. In fact, despite its massive scale already – Grab is a multi-billion-dollar company today –, the company is still just scratching the surface. Grab’s Monthly Transacting Users (MTUs) currently represent just 6% to 7% of the Southeast Asian population. That means there’s a huge growth runway ahead – roughly 94% of the market is still untapped.

What’s even more exciting is Grab’s ecosystem flywheel. About two-thirds of Grab’s users engage with two or more services, and for those using three or more services, the one-year retention rate is an impressive 88%. When customers stay, they not only use more services, but they spend more, too. This is a growth driver that keeps feeding itself.

And then there’s Grab’s cutting-edge use of AI-driven efficiency. By utilizing proprietary AI models, Grab has been able to double its revenue from 2022 to 2024, all while keeping headcount flat. Over 90% of mobility rides are now dispatched using AI, showcasing just how much the company has automated its operations.

On the financial side, Grab has successfully expanded into digital banking. In just three years, Grab amassed 7.4 million deposit customers across its three digital banks, and its loan portfolio crossed the $1 billion mark in 2025 and is expected to exceed $2 billion by 2026 year-end.

And as if all of this wasn’t enough, Grab is setting its sights on global expansion. In early 2026, it completed the $600 million acquisition of foodpanda Taiwan, signaling the company’s intention to push beyond Southeast Asia and tap into new, high-value markets. This marks the first major step in Grab’s journey toward becoming a truly global player.

Of course, this is just the tip of the iceberg. Grab is positioning itself for the future with ambitious plans around autonomous vehicles (AVs) and scaling its financial services. The company is constantly innovating, finding new ways to integrate its services and make the lives of its users easier and more connected.

But what does this mean for investors? Can Grab sustain its growth? What challenges lie ahead? And most importantly, what kind of valuation can you expect as this story unfolds?

As you can tell, Grab is a fascinating business to dive into. So let’s do exactly that and dive deeper into Grab’s history, business model, management team, moat stack, its future, and the growth drivers that will continue to propel this Southeast Asian juggernaut forward.

Are you excited yet? Let’s dive into the first part (11,500 words) of this deep dive.

Leave a comment

Disclaimer: I own Grab shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

As always, in the style of legendary investors like Bill Miller and Peter Lynch, I’m attempting to give you the quick 90-second rundown on Grab Holdings (GRAB) – what’s the investment hypothesis (which we are then going to test throughout this deep dive?

Right now, the stock trades around $3.6, a significant pullback from its 2021 debut. While that might sound concerning, the real story lies in the business transformation that’s been happening under the hood (i.e. not reflected in the share price).

Here are the five reasons why I think Grab is an interesting opportunity:

Read more

You likely think of global ubiquity in terms of the technology in your pocket or the way we travel across borders. But there is a silent sovereign in the American economy that moves more volume than the tech icons we obsess over, and it does so without a single retail storefront.

Every year, Fair Isaac Corporation – better known as FICO – sells over 10 billion scores (which translates to approximately 27 million scores purchased daily).. To put that in perspective, that is roughly 40 times the number of iPhones Apple ships to the entire world in a year and nearly double the total number of passengers who board a commercial flight globally.

It is the de facto passport for financial mobility, used in 90% of all top U.S. lending decisions and serving as the primary measure of risk for over 12 trillion dollars in U.S. mortgage debt.

If you want a mortgage, an auto loan, or even to rent an apartment, you aren’t just a person – you are a three-digit number owned by a company that started in a studio apartment in 1956 with 400 dollars and a radical dream of replacing “handshake-and-vibes” lending with objective algorithms.

In this multi-part deep dive, I want to pull back the curtain on the most efficient toll-bridge in global finance (88% EBIT margins in the Scores segment), and why its supposedly certain downfall was just derailed by a massive regulatory reversal.

I find it fascinating how few people realize the sheer, unchecked pricing power FICO wields. Between 2022 and 2025, the company did something that would be a death sentence for almost any other business – and it brought its fair set of challenges to FICO too, to be fair. It raised the price of its mortgage scores from roughly 0.60 to 4.95 dollars by 2025. That is an 800% increase in just three years. And then again to $10.00 (or $4.95 + $33 Success Fee) for 2026 – another 2x increase.

Imagine your internet provider or utility company jacking up rates by eight times; there would be a congressional inquiry by sunset.

Yet, because FICO is the “universal language” of the mortgage market – cited in 98.8% of all securitizations – lenders simply paid the toll. The financials are the stuff of legend. The company’s core Scores segment operates with 88% operating margins. Even more staggering is the “95% Rule” – for every new dollar of revenue FICO generates through these price hikes, nearly 95 cents drop straight to the bottom line.

As of FY2024, the company turned 1.72 billion dollars in revenue into more 600 million dollars of free cash flow. It is a capital-light compounding machine that requires no factories. It is pure risk math.

For the last 1-2 years, the primary “bear case” for FICO was built on the threat of “Lender Choice” – a regulatory push to break the monopoly by allowing competitors like VantageScore into the ecosystem. The plan was to move from a “tri-merge” (where lenders pull scores from all three bureaus) to a “bi-merge” (where they only pull two). This would have effectively stripped FICO of its guaranteed seat at the table. But everything changed in July 2025. In what some have dubbed the “Pulte Pivot,” FHFA Director Bill Pulte unexpectedly maintained the tri-merge requirement, effectively pulling all three bureaus and slamming the door on the bi-merge transition. This move preserved the existing plumbing of the mortgage market and cemented FICO’s dominance just as the market thought the “invisible engine” was about to be dismantled.

Given the excessive price hikes, this doesn’t mean the regulatory risk is “done” though.

Is the Largest Drawdown Since 2008 an Opportunity?

The world looks significantly more volatile than it did even a few months ago. The ongoing war with Iran has sent geopolitical shockwaves through every asset class, and we are now staring down a macro environment where inflation is expected to skyrocket.

Market sentiment has turned decidedly cold. FICO is currently experiencing its largest drawdown since the Great Financial Crisis, with the stock falling 52.67% from its peak.

I see a market growing increasingly cautious around credit risk, fueled by concerns over debt exposure at firms like Blue Owl ($OWL) and Oracle ($ORCL). This anxiety may have contributed to the drag on FICO’s valuation, down to 25.1x NTM P/E and 18.8x EV/EBIT – well below its five-year mean of 31.5x.

You have to ask yourself: is this a warning of a broader credit event, or a generational buying opportunity for a monopoly?

So in this deep dive series, I’ll explore how FICO is positioned to navigate this era of stagflation and war, and whether the “high beams” of federal regulators are still a threat after the Pulte Pivot.

In this first part, we cover the business’s history, the business model, its products, and competitive environment (11,000 words in total).

Here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

When you think of the stock market, one of the biggest challenges is quickly determining whether a business truly has potential. As my regular readers know, Bill Miller, legendary investor, is known for his “Bam Bam Bam Bam Bam” approach to pitching stocks – which I’ve shamelessly copied.

In essence, it’s a quick pitch that gets straight to the point: Why is this a great business? Miller’s style demands clarity and precision, with just five reasons why an investment could make sense. So, let’s apply this framework to Fair Isaac Corporation (FICO), a company that may not be on everyone’s radar, but absolutely should be.

Here we go …

• BAM #1 – Indispensable Industry Standard: FICO’s scores are the industry standard. In fact, 90% of top U.S. lending decisions use FICO scores. Beyond that, FICO scores dominate the secondary market for securitizations, with 98.8% of U.S. securitizations – a financial process that pools income-generating assets (such as mortgages, auto loans, or credit card debt) and converts them into marketable securities – using FICO to communicate credit risk to investors. This is a business that has become synonymous with credit risk, and replacing FICO would be like changing the engine of a plane mid-flight – a daunting task.

• BAM #2 – Unmatched Pricing Power & Value Gap: FICO is in the midst of a remarkable pricing transformation. After decades of keeping prices flat, FICO raised its wholesale mortgage score price from about $0.60 to $4.95 by 2025 – an eye-popping 800% increase –, and $10 by 2026. Despite this hike, FICO’s fee still represents a negligible 0.2% of average mortgage closing costs. This leaves ample room for further price hikes – at least if you have a long-term view (less so in the near term) – without significantly impacting volume.

• BAM #3 – Elite Margin Profile: FICO’s Scores segment boasts near-monopoly margins, with 88% – yes, you read that right! – operating margins in Q1 2026. The key here is the low incremental cost structure: the core algorithms, developed decades ago (but frequently updated), require minimal investment to scale. That means when FICO raises prices or increases volume, almost every new dollar drops straight to the bottom line.

• BAM #4 – Strategic SaaS Transformation: FICO is transitioning its Software business from legacy on-premises applications to a cloud-native platform. This transformation is paying off, with platform-specific Annual Recurring Revenue (ARR) growing at over 30% in Q1. The company’s “land and expand” strategy is also working well, with existing customers spending significantly more as they adopt new decision-making use cases. This positions FICO for long-term growth in the SaaS space.

• BAM #5 – Aggressive, Shareholder-Aligned Capital Return: FICO has used its cash flows to buy back stock aggressively, reducing its share count by 30% over the past decade, leading to incredibly fast profit per share growth. In fiscal 2025 alone, the company returned $1.4 billion to shareholders via buybacks.

This strategy has led to a stellar 18% EPS CAGR over the last 13 years, far outpacing its 8-9% revenue growth (not per share revenue growth as displayed in the chart below). Simply put, FICO is showing its commitment to delivering value to shareholders.

As we enter 2026, FICO finds itself at a rare entry point. The stock has experienced a 52% price drop from its highs, making it a possibly attractive buy for long-term investors.

So why the drop?

What Went Wrong?

Despite FICO’s strong business fundamentals, the company hasn’t been immune to challenges. The key issues that have weighed on the stock recently are:

• Regulatory Breach of the Monopoly: The FHFA’s formal transition to a “Lender Choice” model has opened the door for VantageScore 4.0 to compete directly with FICO in the market for Fannie Mae and Freddie Mac loans. While this introduces competition and substitution risk, it’s not an existential threat to FICO’s dominance – yet.

• Volume and Revenue Contraction Risks: The potential shift from a “tri-merge” model, requiring three credit scores, to a “bi-merge” model, requiring only two, has the potential to reduce FICO’s score volume by as much as one-third per application. This could directly impact revenue growth in the short term.

• Intensifying Antitrust Scrutiny: FICO is currently defending itself in the “In re FICO Antitrust Litigation” case, which addresses its distribution practices and “transmission fees.” While it’s early in the legal process, the outcome could have implications for FICO’s cost structure.

“On November 24, 2024, the court ruled on FICO’s and the credit bureaus’ motions to dismiss the plaintiffs’ amended complaints. The court dismissed with prejudice all claims in the lawsuit other than a Sherman Act Section 2 claim and accompanying state law claims against FICO, which were allowed to proceed through the discovery stage of the litigation. FICO intends to vigorously defend against the remaining claims in this proceeding.“ - FY25 Annual Report

• Software Segment Growing Pains: FICO’s transition to a SaaS model has not been entirely smooth. Despite strong growth in its Scores business, its Software segment grew a mere 2% in Q1 2026, possibly raising concerns among investors about the potential monetization lag this segment.

Part 1 – Understanding the Business

1.1. History: The Evolution of a Global Risk Standard

The story of Fair Isaac Corporation (FICO) is one of innovation, adaptation, and an unwavering commitment to shaping how credit risk is understood and quantified. From its humble beginnings in a small apartment to becoming a critical part of the global financial ecosystem, FICO has grown into the architect of the pervasive credit risk standard in the United States, serving thousands of businesses across over 100 countries. Let’s take a look at how this company evolved over the years to become a cornerstone of modern financial systems.

Founding and Early Innovations (1956–1980s)

Before we start with FICO itself, it’s worth highlighting how lending decisions were made historically – way back in the day! For most of the twentieth century, the world of credit was remarkably small, intimate, and – by today’s quantitative standards – frustratingly arbitrary. If you needed a loan to buy a home or expand a storefront, you didn’t appeal to an abstract score. You appealed to a person. Usually, this meant sitting across from a local bank manager who, at best, knew your family, your reputation, and perhaps even where you went to church. Decisions were built on a foundation of trust and familiarity that simply doesn’t scale in a modern economy. I find it fascinating how much weight was placed on a simple handshake.

If the manager liked your story, you were in. If he didn’t? You were out.

It was a gatekeeper’s paradise. There was no recourse and no objective data to prove him wrong.

This extreme subjectivity created a massive efficiency problem for the financial system. And because there was no standardized way to measure risk, lending was essentially a binary outcome. You either qualified for the prevailing interest rate or you were rejected entirely.

The concept of risk-based pricing – where you might pay a slightly higher rate because your profile is a bit thinner – simply didn’t exist yet. Everyone who was approved essentially paid the same price for capital. Think about that for a second. A doctor with twenty years of practice and a young baker starting her first shop would receive the same terms, provided they both cleared the manager’s subjective “trust” hurdle. This lack of nuance meant that banks were constantly leaving money on the table. They couldn’t comfortably lend to anyone outside their immediate social or geographic circle because they had no way to price that uncertainty. You were either a known quantity or a total mystery. There was no middle ground. It was an incredibly rigid way to run a national economy.

This brings us to Fair Isaac.

FICO’s journey began in 1956 when engineer Bill Fair and mathematician Earl Isaac – do you see where today’s name is coming from? –, both visionary thinkers, founded the company with a simple but powerful idea: to apply mathematical algorithms to make lending decisions more objective and standardized. The duo met at the Stanford Research Institute, and based on just $400 in personal investments (equivalent to approximately $5,000 today), they set up shop in a studio apartment in San Rafael, California.

In 1958, FICO achieved its first major milestone by selling its first credit scoring system to the American Investment Company (AIC). This was the beginning of a long journey toward mainstream adoption. Early on, these scoring systems were tailored to individual needs and were labor-intensive, often relying on physical paperwork and borrowed computers to process the data. Despite these challenges, it marked the birth of a product that would eventually reshape the credit industry.

The Equal Credit Opportunity Act of 1974 proved to be a pivotal moment in FICO’s growth. The legislation made it illegal to discriminate against applicants based on factors like gender or marital status, creating a powerful incentive for lenders to adopt more objective, data-driven methods of credit evaluation. FICO’s algorithmic scoring models provided a solution, helping lenders demonstrate that their decisions were merit-based and unbiased, thus propelling the company’s growth.

In the 1970s and 1980s, FICO expanded its reach as credit bureaus (nowadays officially known as Consumer Reporting Agencies or CRAs) – essentially, private companies that collect and manage data about your financial behavior – began consolidating. For context, by 1965, at the peak, the trade association for these companies (now known as the Consumer Data Industry Association) had over 2,200 members.

FICO recognized an opportunity to develop models that could be applied universally across different datasets. In 1981, they introduced “PreScore,” the first standardized credit bureau risk score, which laid the groundwork for the universally recognized FICO Score.

The company also went public in 1987 on the NYSE, marking a new chapter in its evolution.

Establishing the “Industry Standard” (1989–2011)

FICO’s true breakthrough came in 1989 with the introduction of the now-famous FICO Score, ranging from 300 to 850.

When researching FICO, I was asking myself why the score doesn’t start at zero. So I’ve looked into the origins of the FICO scale and realized that starting at zero would be a mathematical nightmare for lenders because it implies an absolute certainty of default. Bill Fair and Earl Isaac chose the 300–850 range to provide enough “ticks” on the scale for high–resolution risk assessment. This spread allows for a concept called log–odds, where small point increases represent a doubling of your creditworthiness.

As we’ve learned, before 1989, determining creditworthiness was essentially a Wild West of subjective judgment calls. When FICO finally introduced its standardized 300 – 850 range, it fundamentally rewired the plumbing of the American financial system. FICO’s algorithm effectively turned personal behavior into a quantifiable asset class. It relies on five distinct variables, but the heavy lifting comes from your payment history and total debt levels – accounting for 65% of the total weight. You see, the model prioritizes consistency over sheer net worth. It functions as a track record. One slip-up on a mortgage payment carries more weight than a decade of on-time utility bills.

The remaining fragments of the score – length of history, credit mix, and new inquiries – serve as the fine-tuning for risk assessment. I find it fascinating that the algorithm rewards complexity. If you only hold a single credit card, the system views you as an unproven entity. It wants to see you juggle different types of debt, like an installment loan alongside revolving credit, to prove you can handle diverse financial obligations. Applying for a flurry of new accounts usually triggers a red flag because it signals a sudden, desperate thirst for liquidity. Keep it steady. This balance between the age of your oldest accounts and the freshness of your new ones creates a profile that lenders can actually trade against. It changed everything.

FICO’s standardized score quickly became the go-to method for assessing credit risk. Lenders embraced the simplicity and reliability of this scoring system, and it became a key part of their decision-making process.

Then, FICO reached a watershed moment in 1995 when Fannie Mae and Freddie Mac, the U.S. government-sponsored entities (GSEs), required the use of the FICO Score for all conforming mortgage originations. This move solidified FICO’s position as the industry standard, as it became the “lingua franca” of credit risk, enabling the mass securitization of debt. Investors demanded a consistent and reliable benchmark to assess loan pools, and FICO’s scoring system met that need.

Throughout the 1990s and 2000s, FICO diversified its offerings beyond credit scoring. The company expanded into decision software with the launch of products like Falcon Fraud Manager, a tool that now protects around two-thirds of all credit card transactions worldwide. This diversification helped FICO cement its reputation as not just a score provider, but as a comprehensive risk management partner for businesses.

Leadership Change and Strategic Pivot (2012–Present)

A significant shift occurred in 2012 when William J. Lansing was appointed CEO. Under Lansing’s leadership, FICO embarked on a path of modernization and aggressive monetization. This shift paid off in a big way: by 2023, the company’s stock price had increased approximately sixteen-fold. Lansing’s strategic vision positioned FICO to capitalize on both its legacy business and new growth opportunities in cloud-based software.

Importantly, for nearly three decades, FICO kept its prices largely unchanged, prioritizing widespread adoption. However, in 2018, the company began a strategic pricing shift, particularly in the mortgage sector. The price of wholesale mortgage scores jumped from around $0.60 to nearly $5.00 by 2025 – an 800% increase! This dramatic pricing move, although controversial, is a reflection of FICO’s growing recognition of the immense value it provides in the financial ecosystem.

FICO’s leadership recognized the growing importance of cloud-based technologies and embarked on a massive, multi-year investment to transition from legacy on-premises solutions to the cloud-native FICO Platform. As part of this transformation, FICO also divested non-strategic businesses such as its Cyber Risk Score (2020), Collections and Recovery (2021), and Siron compliance (2023).

This focus on cloud-based software has set the stage for FICO’s future growth, with Annual Recurring Revenue (ARR) from platform-specific offerings growing at over 30% annually.

To align its operations with the new platform-first strategy, FICO merged its Applications and Decision Management Software segments into a unified Software segment in 2021.

This consolidation aimed to streamline operations and improve the company’s focus on its evolving cloud-based platform. In 2022, Stephanie Covert was appointed as the first leader of the newly unified software group, bringing fresh leadership to an increasingly complex and global business.

Challenges and Strategic Controversies

The 2008–2009 financial crisis was a difficult period for FICO, as lenders pulled back on extending credit in the wake of the housing crash. This resulted in a nearly 27% drop in Scores revenue, highlighting the company’s sensitivity to economic downturns. However, FICO’s adaptability and position in the credit risk ecosystem allowed it to rebound in the years following the crisis.

In 2022, the Federal Housing Finance Agency (FHFA) approved the use of VantageScore 4.0 for GSE mortgages, ending FICO’s long-standing monopoly on GSE-originated loans.

This regulatory change, which introduced a “Lender Choice” model, has posed a significant challenge to FICO’s traditional business model. The company has responded by promoting its more predictive FICO 10T model and introducing the Mortgage Direct License Program in 2025 to circumvent traditional credit bureau distribution channels.

FICO’s pricing model has come under increasing scrutiny in recent years. The company’s aggressive price hikes and “transmission fees” – charges imposed on credit bureaus for delivering FICO scores – have led to legal battles, including the ongoing “In re FICO Antitrust Litigation.” Additionally, U.S. lawmakers have raised concerns about potential price gouging in the mortgage market. These legal and regulatory challenges could pose risks to FICO’s growth and profitability.

There’s, of course, more to all of this, and we will discuss the FHFA’s shift and the risk it presents to FICO in depth in part 5 (risks).

Finally, FICO has faced criticism for its models, which some argue may disadvantage groups with limited credit histories. In response, the company has focused on broadening financial inclusion by investing more than 50% of its Scores R&D into products designed to include individuals with limited credit history, such as UltraFICO and FICO Score XD.

1.2. Product

FICO, a leader in credit risk management, operates through two primary reportable segments:

• Scores and

• Software

Both of which can be further subdivided.

These segments, though distinct, are deeply interconnected, with each contributing significantly to the company’s overall growth and profitability.

Below you find the overall revenue contribution of each segment for the last seven fiscal years and the respective YoY growth rates.

Let’s explore the products and services FICO offers, and how they stand out in a competitive market.

The full analysis starts here:

The rest of this post and the follow-up parts of this deep dive series will cover the topics outlined in the table of contents displayed in the introduction. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks. is just a click away. Upgrade your subscription, support my work, and keep learning.

Subscribe now

Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

Read more

Read more

More broadly, Charlie Munger’s principle of “inversion” reminds us to consider what could go wrong before assuming everything will go smoothly.

For FICO, the current regulatory landscape is a key area of concern. As the company faces mounting scrutiny from the FHFA and lawmakers over its pricing strategies, there’s a growing risk that the once-impenetrable tollbooth business model could be undermined by regulatory and competitive changes.

These pressures are likely to shape future growth expectations (which we will need for our final part focused on valuing this business) and will require investors to reassess how much pricing power FICO can wield in the future without attracting too much pushback.

So again, in this part, we’ll thus dig deep into FICO’s balance sheet, the intricacies of the regulatory headwinds, AI risk, and much more.

Start with part 1 here:

Read more

I’m focusing this second part of our analysis (6,500 words) on everything you need to know about the quality of the business itself, specifically its competitive advantages and the people calling the shots from the C-suite. So without further ado, let’s get into it:

As a reminder, here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Part 2 – Business Quality

2.1. Competitive Advantage Analysis

The Tollbooth Model

Based on the understanding of FICO’s business model that we developed in part 1, I want to start this “competitive advantage discussion” with a more general observation:

The “financial tollbooth” model is a powerful and enduring business model that continues to create clear winner-takes-all or winner-takes-most dynamics in many industries. Companies like S&P Global, Wise, LSEG’s clearing business, Moody’s, MSCI, CME Group, and Mastercard/Visa are all prime examples of businesses that sit at the heart of the financial system, taking a small fee every time money moves or decisions are made. These tollbooths thrive because they are embedded into the system itself – they don’t manufacture physical goods or take on significant capital expenditures, yet they continue to enjoy exceptional margins and stable, recurring revenue streams.

Their fees, often a tiny percentage of a much larger transaction, are largely invisible to end-users, making them highly efficient revenue generators. And the best part? Once these tollbooths are in place, they benefit from tremendous scalability with minimal ongoing investment.

For FICO, its tollbooth model is equally powerful. It’s embedded at the very heart of the U.S. credit and mortgage markets. In 2025, FICO scores were used in over 90% of top U.S. lending decisions. Each time a consumer applies for a loan, buys a car, or even rents an apartment, a FICO score is used to assess their creditworthiness. Just like Visa and Mastercard, FICO charges a small fee (typically only about 0.2% of the average mortgage closing cost) every time a transaction occurs. With its status as the de facto standard in U.S. credit risk assessment, FICO remains indispensable.

Similar to MSCI, FICO’s pricing power and dominance in the industry are underpinned by its cultural and regulatory embeddedness. FICO scores are so deeply woven into the financial fabric that they are the primary measure of risk in the U.S. mortgage industry, where 98.8% of all U.S. mortgage-backed securities rely on FICO scores for risk assessment.

Despite these advantages, FICO’s position in the financial tollbooth space is not without its risks. While VantageScore, a joint venture of the three major U.S. credit bureaus (Experian, TransUnion, and Equifax), has been working to challenge FICO’s dominance, the competitive dynamics in the industry – at least so far – are still structured in a way that benefits FICO. The credit scoring market, much like other financial tollbooths, exhibits clear winner-takes-all or winner-takes-most characteristics.

We embedded this FICO management comment from 2025 in part one, explaining the nature of this industry structure:

“As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender choice encourages mortgage participants to shop for the most [ lax score, which drives unavoidable gaming and adverse selection for all risk holders“

And today I stumbled across this comment by Akre Capital (especially known to be a long-term Moody’s shareholder), who made a similar point:

“Allowing lenders to cherry-pick a single score creates “rating shopping,” selecting the highest score rather than the most accurate or most accepted. This leads to an adverse-selection problem for consumer-credit investors. FICO’s dominance is a market-driven outcome because it is the score demanded by investors."

In short, once a standard is established, it is extremely difficult to get a competing standard off the ground.

The industry structure is worth noting, as FICO’s tollbooth model shares characteristics with other leading firms like S&P Global and Moody’s in debt markets or CME Group in futures and commodities trading. These companies, much like FICO, charge fees each time a decision is made, whether it’s through credit ratings, securitization, or trade execution. Their economic model is brilliant in its simplicity – asset-light, with virtually all revenue flowing to the bottom line. Unsuprisingly, their stocks crushed it over the last 20 years.

CME Group, for instance, benefits when market volatility increases, as more trading activity translates into higher revenues. MSCI, meanwhile, has a different spin on the tollbooth model. By charging a small fee on trillions of dollars tied to financial benchmarks, MSCI’s pricing power remains largely invisible to individual users, making it extremely durable and less sensitive to regulatory pushback.

In FICO’s case, the risk to its tollbooth model stems from growing competition within the Scores segment and its increasing vulnerability to pricing scrutiny. While it has successfully raised prices for mortgage scores by 1,600% between 2022 and 2026, the pressure from the credit bureaus, which now act as both partners and competitors in the space, is intensifying. The recent approval of VantageScore 4.0 for use in government-backed mortgages by the FHFA in July 2025 is a pivotal development, undermining FICO’s monopolistic pricing power. This move is significant as it potentially opens the door for lenders to diversify their score sources, potentially squeezing FICO’s ability to maintain its past pricing leverage.

Despite these threats, FICO’s business model remains incredibly resilient. Its “tollbridge” strategy, similar to that of companies like Verisk Analytics (which serves the insurance industry) continues to generate exceptional margins. These businesses all share a common trait: they operate as essential intermediaries in systems that are difficult to disrupt.

A Powerful Industry Standard

This is where it gets interesting

Become a paying subscriber to read the rest of this post and get access to all of my other research, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more), and powerful investing frameworks.

Subscribe now

Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

Read more

Every year, Fair Isaac Corporation – better known as FICO – sells over 10 billion scores (which translates to approximately 27 million scores purchased daily).. To put that in perspective, that is roughly 40 times the number of iPhones Apple ships to the entire world in a year and nearly double the total number of passengers who board a commercial flight globally.

It is the de facto passport for financial mobility, used in 90% of all top U.S. lending decisions and serving as the primary measure of risk for over 12 trillion dollars in U.S. mortgage debt.

If you want a mortgage, an auto loan, or even to rent an apartment, you aren’t just a person – you are a three-digit number owned by a company that started in a studio apartment in 1956 with 400 dollars and a radical dream of replacing “handshake-and-vibes” lending with objective algorithms.

In this multi-part deep dive, I want to pull back the curtain on the most efficient toll-bridge in global finance (88% EBIT margins in the Scores segment), and why its supposedly certain downfall was just derailed by a massive regulatory reversal.

I find it fascinating how few people realize the sheer, unchecked pricing power FICO wields. Between 2022 and 2025, the company did something that would be a death sentence for almost any other business – and it brought its fair set of challenges to FICO too, to be fair. It raised the price of its mortgage scores from roughly 0.60 to 4.95 dollars by 2025. That is an 800% increase in just three years. And then again to $10.00 (or $4.95 + $33 Success Fee) for 2026 – another 2x increase.

Imagine your internet provider or utility company jacking up rates by eight times; there would be a congressional inquiry by sunset.

Yet, because FICO is the “universal language” of the mortgage market – cited in 98.8% of all securitizations – lenders simply paid the toll. The financials are the stuff of legend. The company’s core Scores segment operates with 88% operating margins. Even more staggering is the “95% Rule” – for every new dollar of revenue FICO generates through these price hikes, nearly 95 cents drop straight to the bottom line.

As of FY2024, the company turned 1.72 billion dollars in revenue into more 600 million dollars of free cash flow. It is a capital-light compounding machine that requires no factories. It is pure risk math.

For the last 1-2 years, the primary “bear case” for FICO was built on the threat of “Lender Choice” – a regulatory push to break the monopoly by allowing competitors like VantageScore into the ecosystem. The plan was to move from a “tri-merge” (where lenders pull scores from all three bureaus) to a “bi-merge” (where they only pull two). This would have effectively stripped FICO of its guaranteed seat at the table. But everything changed in July 2025. In what some have dubbed the “Pulte Pivot,” FHFA Director Bill Pulte unexpectedly maintained the tri-merge requirement, effectively pulling all three bureaus and slamming the door on the bi-merge transition. This move preserved the existing plumbing of the mortgage market and cemented FICO’s dominance just as the market thought the “invisible engine” was about to be dismantled.

Given the excessive price hikes, this doesn’t mean the regulatory risk is “done” though.

Is the Largest Drawdown Since 2008 an Opportunity?

The world looks significantly more volatile than it did even a few months ago. The ongoing war with Iran has sent geopolitical shockwaves through every asset class, and we are now staring down a macro environment where inflation is expected to skyrocket.

Market sentiment has turned decidedly cold. FICO is currently experiencing its largest drawdown since the Great Financial Crisis, with the stock falling 52.67% from its peak.

I see a market growing increasingly cautious around credit risk, fueled by concerns over debt exposure at firms like Blue Owl ($OWL) and Oracle ($ORCL). This anxiety may have contributed to the drag on FICO’s valuation, down to 25.1x NTM P/E and 18.8x EV/EBIT – well below its five-year mean of 31.5x.

You have to ask yourself: is this a warning of a broader credit event, or a generational buying opportunity for a monopoly?

So in this deep dive series, I’ll explore how FICO is positioned to navigate this era of stagflation and war, and whether the “high beams” of federal regulators are still a threat after the Pulte Pivot.

In this first part, we cover the business’s history, the business model, its products, and competitive environment (11,000 words in total).

Here’s what I will cover in this deep dive series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Fair Isaac and Why Now?

• 1) Understanding the Business

  • 1.1. Business History

  • 1.2. Product

  • 1.3. Business Operations

  • 1.4. Customers

  • 1.5. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation

  • 3.4. Management Roasting

• 4) Financial Health

  • 4.1. Balance Sheet Health

  • 4.2. Operating Perspective

  • 4.3. Off-Balance Sheet Items & Hidden Risks

• 5) Risks

  • 5.1. Inversion

  • 5.2. VantageScore vs. FICO: Is the Credit Scoring Giant Losing Its Grip?

• 6) Other Items

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis and identifying key growth drivers)

  • 7.3. Valuation Work

• Fun Fact

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

When you think of the stock market, one of the biggest challenges is quickly determining whether a business truly has potential. As my regular readers know, Bill Miller, legendary investor, is known for his “Bam Bam Bam Bam Bam” approach to pitching stocks – which I’ve shamelessly copied.

In essence, it’s a quick pitch that gets straight to the point: Why is this a great business? Miller’s style demands clarity and precision, with just five reasons why an investment could make sense. So, let’s apply this framework to Fair Isaac Corporation (FICO), a company that may not be on everyone’s radar, but absolutely should be.

Here we go …

• BAM #1 – Indispensable Industry Standard: FICO’s scores are the industry standard. In fact, 90% of top U.S. lending decisions use FICO scores. Beyond that, FICO scores dominate the secondary market for securitizations, with 98.8% of U.S. securitizations – a financial process that pools income-generating assets (such as mortgages, auto loans, or credit card debt) and converts them into marketable securities – using FICO to communicate credit risk to investors. This is a business that has become synonymous with credit risk, and replacing FICO would be like changing the engine of a plane mid-flight – a daunting task.

• BAM #2 – Unmatched Pricing Power & Value Gap: FICO is in the midst of a remarkable pricing transformation. After decades of keeping prices flat, FICO raised its wholesale mortgage score price from about $0.60 to $4.95 by 2025 – an eye-popping 800% increase –, and $10 by 2026. Despite this hike, FICO’s fee still represents a negligible 0.2% of average mortgage closing costs. This leaves ample room for further price hikes – at least if you have a long-term view (less so in the near term) – without significantly impacting volume.

• BAM #3 – Elite Margin Profile: FICO’s Scores segment boasts near-monopoly margins, with 88% – yes, you read that right! – operating margins in Q1 2026. The key here is the low incremental cost structure: the core algorithms, developed decades ago (but frequently updated), require minimal investment to scale. That means when FICO raises prices or increases volume, almost every new dollar drops straight to the bottom line.

• BAM #4 – Strategic SaaS Transformation: FICO is transitioning its Software business from legacy on-premises applications to a cloud-native platform. This transformation is paying off, with platform-specific Annual Recurring Revenue (ARR) growing at over 30% in Q1. The company’s “land and expand” strategy is also working well, with existing customers spending significantly more as they adopt new decision-making use cases. This positions FICO for long-term growth in the SaaS space.

• BAM #5 – Aggressive, Shareholder-Aligned Capital Return: FICO has used its cash flows to buy back stock aggressively, reducing its share count by 30% over the past decade, leading to incredibly fast profit per share growth. In fiscal 2025 alone, the company returned $1.4 billion to shareholders via buybacks.

This strategy has led to a stellar 18% EPS CAGR over the last 13 years, far outpacing its 8-9% revenue growth (not per share revenue growth as displayed in the chart below). Simply put, FICO is showing its commitment to delivering value to shareholders.

As we enter 2026, FICO finds itself at a rare entry point. The stock has experienced a 52% price drop from its highs, making it a possibly attractive buy for long-term investors.

So why the drop?

What Went Wrong?

Despite FICO’s strong business fundamentals, the company hasn’t been immune to challenges. The key issues that have weighed on the stock recently are:

1. Regulatory Breach of the Monopoly: The FHFA’s formal transition to a “Lender Choice” model has opened the door for VantageScore 4.0 to compete directly with FICO in the market for Fannie Mae and Freddie Mac loans. While this introduces competition and substitution risk, it’s not an existential threat to FICO’s dominance – yet.

2. Volume and Revenue Contraction Risks: The potential shift from a “tri-merge” model, requiring three credit scores, to a “bi-merge” model, requiring only two, has the potential to reduce FICO’s score volume by as much as one-third per application. This could directly impact revenue growth in the short term.

3. Intensifying Antitrust Scrutiny: FICO is currently defending itself in the “In re FICO Antitrust Litigation” case, which addresses its distribution practices and “transmission fees.” While it’s early in the legal process, the outcome could have implications for FICO’s cost structure.

   “On November 24, 2024, the court ruled on FICO’s and the credit bureaus’ motions to dismiss the plaintiffs’ amended complaints. The court dismissed with prejudice all claims in the lawsuit other than a Sherman Act Section 2 claim and accompanying state law claims against FICO, which were allowed to proceed through the discovery stage of the litigation. FICO intends to vigorously defend against the remaining claims in this proceeding.“ - FY25 Annual Report

4. Software Segment Growing Pains: FICO’s transition to a SaaS model has not been entirely smooth. Despite strong growth in its Scores business, its Software segment grew a mere 2% in Q1 2026, possibly raising concerns among investors about the potential monetization lag this segment.

Part 1 – Understanding the Business

1.1. History: The Evolution of a Global Risk Standard

The story of Fair Isaac Corporation (FICO) is one of innovation, adaptation, and an unwavering commitment to shaping how credit risk is understood and quantified. From its humble beginnings in a small apartment to becoming a critical part of the global financial ecosystem, FICO has grown into the architect of the pervasive credit risk standard in the United States, serving thousands of businesses across over 100 countries. Let’s take a look at how this company evolved over the years to become a cornerstone of modern financial systems.

Founding and Early Innovations (1956–1980s)

Before we start with FICO itself, it’s worth highlighting how lending decisions were made historically – way back in the day! For most of the twentieth century, the world of credit was remarkably small, intimate, and – by today’s quantitative standards – frustratingly arbitrary. If you needed a loan to buy a home or expand a storefront, you didn’t appeal to an abstract score. You appealed to a person. Usually, this meant sitting across from a local bank manager who, at best, knew your family, your reputation, and perhaps even where you went to church. Decisions were built on a foundation of trust and familiarity that simply doesn’t scale in a modern economy. I find it fascinating how much weight was placed on a simple handshake.

If the manager liked your story, you were in. If he didn’t? You were out.

It was a gatekeeper’s paradise. There was no recourse and no objective data to prove him wrong.

This extreme subjectivity created a massive efficiency problem for the financial system. And because there was no standardized way to measure risk, lending was essentially a binary outcome. You either qualified for the prevailing interest rate or you were rejected entirely.

The concept of risk-based pricing – where you might pay a slightly higher rate because your profile is a bit thinner – simply didn’t exist yet. Everyone who was approved essentially paid the same price for capital. Think about that for a second. A doctor with twenty years of practice and a young baker starting her first shop would receive the same terms, provided they both cleared the manager’s subjective “trust” hurdle. This lack of nuance meant that banks were constantly leaving money on the table. They couldn’t comfortably lend to anyone outside their immediate social or geographic circle because they had no way to price that uncertainty. You were either a known quantity or a total mystery. There was no middle ground. It was an incredibly rigid way to run a national economy.

This brings us to Fair Isaac.

FICO’s journey began in 1956 when engineer Bill Fair and mathematician Earl Isaac – do you see where today’s name is coming from? –, both visionary thinkers, founded the company with a simple but powerful idea: to apply mathematical algorithms to make lending decisions more objective and standardized. The duo met at the Stanford Research Institute, and based on just $400 in personal investments (equivalent to approximately $5,000 today), they set up shop in a studio apartment in San Rafael, California.

In 1958, FICO achieved its first major milestone by selling its first credit scoring system to the American Investment Company (AIC). This was the beginning of a long journey toward mainstream adoption. Early on, these scoring systems were tailored to individual needs and were labor-intensive, often relying on physical paperwork and borrowed computers to process the data. Despite these challenges, it marked the birth of a product that would eventually reshape the credit industry.

The Equal Credit Opportunity Act of 1974 proved to be a pivotal moment in FICO’s growth. The legislation made it illegal to discriminate against applicants based on factors like gender or marital status, creating a powerful incentive for lenders to adopt more objective, data-driven methods of credit evaluation. FICO’s algorithmic scoring models provided a solution, helping lenders demonstrate that their decisions were merit-based and unbiased, thus propelling the company’s growth.

In the 1970s and 1980s, FICO expanded its reach as credit bureaus (nowadays officially known as Consumer Reporting Agencies or CRAs) – essentially, private companies that collect and manage data about your financial behavior – began consolidating. For context, by 1965, at the peak, the trade association for these companies (now known as the Consumer Data Industry Association) had over 2,200 members.

FICO recognized an opportunity to develop models that could be applied universally across different datasets. In 1981, they introduced “PreScore,” the first standardized credit bureau risk score, which laid the groundwork for the universally recognized FICO Score.

The company also went public in 1987 on the NYSE, marking a new chapter in its evolution.

Establishing the “Industry Standard” (1989–2011)

FICO’s true breakthrough came in 1989 with the introduction of the now-famous FICO Score, ranging from 300 to 850.

When researching FICO, I was asking myself why the score doesn't start at zero. So I’ve looked into the origins of the FICO scale and realized that starting at zero would be a mathematical nightmare for lenders because it implies an absolute certainty of default. Bill Fair and Earl Isaac chose the 300–850 range to provide enough "ticks" on the scale for high–resolution risk assessment. This spread allows for a concept called log–odds, where small point increases represent a doubling of your creditworthiness.

As we’ve learned, before 1989, determining creditworthiness was essentially a Wild West of subjective judgment calls. When FICO finally introduced its standardized 300 – 850 range, it fundamentally rewired the plumbing of the American financial system. FICO’s algorithm effectively turned personal behavior into a quantifiable asset class. It relies on five distinct variables, but the heavy lifting comes from your payment history and total debt levels – accounting for 65% of the total weight. You see, the model prioritizes consistency over sheer net worth. It functions as a track record. One slip-up on a mortgage payment carries more weight than a decade of on-time utility bills.

The remaining fragments of the score – length of history, credit mix, and new inquiries – serve as the fine-tuning for risk assessment. I find it fascinating that the algorithm rewards complexity. If you only hold a single credit card, the system views you as an unproven entity. It wants to see you juggle different types of debt, like an installment loan alongside revolving credit, to prove you can handle diverse financial obligations. Applying for a flurry of new accounts usually triggers a red flag because it signals a sudden, desperate thirst for liquidity. Keep it steady. This balance between the age of your oldest accounts and the freshness of your new ones creates a profile that lenders can actually trade against. It changed everything.

FICO’s standardized score quickly became the go-to method for assessing credit risk. Lenders embraced the simplicity and reliability of this scoring system, and it became a key part of their decision-making process.

Then, FICO reached a watershed moment in 1995 when Fannie Mae and Freddie Mac, the U.S. government-sponsored entities (GSEs), required the use of the FICO Score for all conforming mortgage originations. This move solidified FICO’s position as the industry standard, as it became the “lingua franca” of credit risk, enabling the mass securitization of debt. Investors demanded a consistent and reliable benchmark to assess loan pools, and FICO’s scoring system met that need.

Throughout the 1990s and 2000s, FICO diversified its offerings beyond credit scoring. The company expanded into decision software with the launch of products like Falcon Fraud Manager, a tool that now protects around two-thirds of all credit card transactions worldwide. This diversification helped FICO cement its reputation as not just a score provider, but as a comprehensive risk management partner for businesses.

Leadership Change and Strategic Pivot (2012–Present)

A significant shift occurred in 2012 when William J. Lansing was appointed CEO. Under Lansing’s leadership, FICO embarked on a path of modernization and aggressive monetization. This shift paid off in a big way: by 2023, the company’s stock price had increased approximately sixteen-fold. Lansing’s strategic vision positioned FICO to capitalize on both its legacy business and new growth opportunities in cloud-based software.

Importantly, for nearly three decades, FICO kept its prices largely unchanged, prioritizing widespread adoption. However, in 2018, the company began a strategic pricing shift, particularly in the mortgage sector. The price of wholesale mortgage scores jumped from around $0.60 to nearly $5.00 by 2025 – an 800% increase! This dramatic pricing move, although controversial, is a reflection of FICO’s growing recognition of the immense value it provides in the financial ecosystem.

FICO’s leadership recognized the growing importance of cloud-based technologies and embarked on a massive, multi-year investment to transition from legacy on-premises solutions to the cloud-native FICO Platform. As part of this transformation, FICO also divested non-strategic businesses such as its Cyber Risk Score (2020), Collections and Recovery (2021), and Siron compliance (2023).

This focus on cloud-based software has set the stage for FICO’s future growth, with Annual Recurring Revenue (ARR) from platform-specific offerings growing at over 30% annually.

To align its operations with the new platform-first strategy, FICO merged its Applications and Decision Management Software segments into a unified Software segment in 2021.

This consolidation aimed to streamline operations and improve the company’s focus on its evolving cloud-based platform. In 2022, Stephanie Covert was appointed as the first leader of the newly unified software group, bringing fresh leadership to an increasingly complex and global business.

Challenges and Strategic Controversies

The 2008–2009 financial crisis was a difficult period for FICO, as lenders pulled back on extending credit in the wake of the housing crash. This resulted in a nearly 27% drop in Scores revenue, highlighting the company’s sensitivity to economic downturns. However, FICO’s adaptability and position in the credit risk ecosystem allowed it to rebound in the years following the crisis.

In 2022, the Federal Housing Finance Agency (FHFA) approved the use of VantageScore 4.0 for GSE mortgages, ending FICO’s long-standing monopoly on GSE-originated loans.

This regulatory change, which introduced a “Lender Choice” model, has posed a significant challenge to FICO’s traditional business model. The company has responded by promoting its more predictive FICO 10T model and introducing the Mortgage Direct License Program in 2025 to circumvent traditional credit bureau distribution channels.

FICO’s pricing model has come under increasing scrutiny in recent years. The company’s aggressive price hikes and “transmission fees” – charges imposed on credit bureaus for delivering FICO scores – have led to legal battles, including the ongoing “In re FICO Antitrust Litigation.” Additionally, U.S. lawmakers have raised concerns about potential price gouging in the mortgage market. These legal and regulatory challenges could pose risks to FICO’s growth and profitability.

There’s, of course, more to all of this, and we will discuss the FHFA’s shift and the risk it presents to FICO in depth in part 5 (risks).

Finally, FICO has faced criticism for its models, which some argue may disadvantage groups with limited credit histories. In response, the company has focused on broadening financial inclusion by investing more than 50% of its Scores R&D into products designed to include individuals with limited credit history, such as UltraFICO and FICO Score XD.

1.2. Product

FICO, a leader in credit risk management, operates through two primary reportable segments:

• Scores and

• Software

Both of which can be further subdivided.

These segments, though distinct, are deeply interconnected, with each contributing significantly to the company’s overall growth and profitability.

Below you find the overall revenue contribution of each segment for the last seven fiscal years and the respective YoY growth rates.

Let’s explore the products and services FICO offers, and how they stand out in a competitive market.

The full analysis starts here:

The rest of this post and the follow-up parts of this deep dive series will cover the topics outlined in the table of contents displayed in the introduction. If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks. is just a click away. Upgrade your subscription, support my work, and keep learning.

Subscribe now

Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

Read more

The market is treating this like a commodity-type legacy business in decline, but the numbers tell a different story (>40% revenue growth YoY).

Let me tell you more about this business.

Read more

For a while, this concern had a very real impact on its stock price, with investors speculating that growth was slowing further and perhaps even plateauing earlier than expected.

However, the company’s Q1 earnings report not only exceeded expectations but also revealed a deeper, more strategic growth story that suggests the best may still be ahead.

In this post, I’ll take a fresh look at Timee’s stock, diving into the Q1 results and unpacking why the numbers weren’t just a pleasant surprise, but a sign that Timee’s growth potential remains intact.

We’ll start by breaking down how Q1 reflected a strategic rebound, particularly with the upward revisions in full-year guidance and the return of growth in core areas like logistics and retail.

But the story doesn’t end with the numbers. The earnings call and the recent “fireside chat” with Bristlemoon Capital gave investors more qualitative insights into the company’s future direction, including the shift in fiscal year-end, the push into long-term hiring solutions, and the exciting potential of expanding into international markets like Korea.

In addition, I’ll give a quick update on Timee’s valuation, exploring the 5-year total shareholder return scenario, which suggests that the stock’s future price could see impressive gains if the company continues on its growth trajectory.

So, if you’ve been watching Timee with skepticism, it might be time for a second look.

Read my deep dive here:

Disclaimer: I own Timee shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

1) Stellar Q1 – Timee’s Strong Rebound and Revised Guidance

Timee, Inc. delivered a phenomenal performance for the first quarter of FY26, reporting net sales of JPY 10.85 billion, which marked a 25.6% year-on-year (YoY) increase.

This was accompanied by a 49.2% YoY surge in operating profit, reaching JPY 2.10 billion. The company’s strong growth surpassed internal expectations, prompting a revision of its full-year guidance.

The revised forecast now projects net sales of JPY 20.5 billion to JPY 20.91 billion, reflecting an increase of 24.6% to 27.1% YoY, and operating profit of JPY 3.74 billion to JPY 4.13 billion, an increase of 14.7% to 26.7% YoY.

Key Performance Indicators

Timee’s strong Q1 results were driven by a combination of factors, with its core spot-work platform continuing to grow and improve in efficiency.

• Transaction Volume (GMV): This metric reached JPY 36,172 million, up 21.0% YoY, driven primarily by a significant increase in the number of active workers.

  

• User Base: Timee’s registered workers now exceed 13.4 million, with 440,000 registered client accounts, indicating a growing network effect that benefits both employers and workers.

  

• Fill Rate: Despite the busy peak season, the company maintained a solid fill rate of 84.9%, up 0.3 percentage points from the previous year. To remind you of the relevance of this KPI, read the excerpt below from Bristlemoon’s recent investor letter.

• Take Rate: Timee maintained a high take rate of 28.8%, which remains stable despite increasing competition in the gig economy.

Sector Performance and Industry Developments

Timee’s performance varied across key sectors, with logistics and retail being standout drivers of growth, while the food industry continues to face significant challenges. Here’s a breakdown of how different industries contributed:

• Logistics: The logistics sector showed notable improvement during its first peak season since the full-scale implementation of the onboarding burden reduction project. The recruitment of Field Managers (FMs), who are responsible for worker training on-site, exceeded expectations, allowing the company to maintain high fill rates even during the busiest periods.

• Retail: Growth in the retail sector was supported by business process reengineering (BPR) initiatives, which helped increase GMV per active account by 8.5% YoY. Sub-industries like drugstores also began to show signs of expansion, contributing positively to overall growth.

• Food Industry: This sector continues to struggle, showing a YoY decline of 4.8% as clients in the food industry continue to implement cost containment measures. Despite this, management reported signs of individual recovery, especially from new solution proposals that are being tested with select clients.

• Social Care: In contrast, the social care sector – while still small – was one of the major success stories in Q1, with GMV growing 115.7% YoY and the number of active accounts increasing by 147.6% YoY. This strong growth underscores the sector’s increasing importance and Timee’s growing footprint in healthcare and welfare.

Strategic Initiatives and New Business Ventures

Timee is taking aggressive steps to expand its business model beyond simple spot-work matching, aiming to address broader client needs:

• Long-Term Hiring Support: A new service is being developed to allow clients to hire workers for permanent positions after utilizing Timee’s spot-work platform. This service, which is targeting a formal launch in summer 2026, already has 700,000 workers (27% of total) expressing interest in transitioning to long-term roles. Early data suggests these hires show higher retention rates than workers sourced through traditional job boards.

  

• SukimaWorks: This logistics warehouse outsourcing business, now fully consolidated into Timee, reported ¥316 million in revenue for Q1 and is progressing smoothly toward meeting its full-year target.

• Timee Career Plus: The full-time placement service saw strong growth, with net sales increasing by 3.6 times YoY, reflecting the broader expansion of Timee’s services beyond temporary labor.

Addressing the Sell-Off: Concerns and Reassurance

As highlighted in the introduction, previously investors had been concerned that Timee had matured too quickly and had already hit the total addressable market (TAM) ceiling, particularly in its core sectors. Concerns about slower growth were exacerbated by the food sector’s struggles and the belief that the company’s growth potential had been overestimated.

However, Timee’s impressive Q1 results, upward revision of guidance, and strategic diversification into sectors like social care, long-term hiring, and full-time placement services are a clear indication that growth is far from stalled. I’ve attached the quarterly YoY growth rates below - in Q1 growth reaccerlated.

The company is actively reengineering its approach to capture new market opportunities, particularly in high-growth sectors like logistics, retail, and social care. Additionally, Timee’s ongoing investments in AI-driven processes and physical robotics suggest a future where the company can leverage its data and field expertise to stay ahead of market trends and technological disruptions.

The strong Q1 performance has set a solid foundation for Timee’s growth trajectory in FY26/4. With its upwardly revised full-year forecast and continued expansion into new sectors, Timee is proving that it has the agility and vision to navigate market challenges.

Investors who were concerned about the company’s growth potential in the wake of the stock sell-off should now take a closer look at the diversification strategy and the growing demand in key sectors.

2) The Earnings Call: Key Insights

In the Q1 earnings call for Timee, some qualitative insights emerged – for me at least. These discussions revealed more about the company’s strategic direction, plans for reinvestment, shareholder returns, and operational challenges.

Fiscal Year Shift: Aligning Resources with Peak Demand

One of the significant changes discussed during the call was Timee’s shift from an October-end fiscal year to an April-end fiscal year. This move was driven by the company’s aim to better align internal resources with the peak demand periods from clients, particularly in industries like logistics and retail, where year-end (holiday) periods are crucial.

CEO Ryo Ogawa explained that the previous fiscal year-end, in October, created internal challenges, particularly during the November and December months, when the company struggled with handling the transition period’s administrative tasks while still preparing for the peak season ahead. As Ogawa put it:

“The reason background behind this is... the year end is a busy season not only for the logistics but also for the food and retail including Christmas sales period which is a crucial timing for everybody to make money. On the other hand, when the fiscal year ends in October, November and December coming, it becomes challenging internally for us within the company to handle the start of the period response and also the various administrative tasks. So the challenge was the crucial critical timing when we needed to have the greatest impact. We were unable to fully maximize the resources available. So this time we have decided to shift the fiscal period by half year to ensure we can properly allocate resources to engage with the customers."

Growth Outlook: Reinvesting for Long-Term Scalability

Despite the strong Q1 performance, management emphasized that this period would be characterized by aggressive reinvestment rather than focusing on immediate margin expansion. CFO Tomoaki Yagi clarified that Timee views the current phase as one of investment and preparation for future growth, stating:

“So as I mentioned earlier the this first quarter both this one and also the second quarter there is a plan to further accelerate the investment. So rather than starting from May, our current assumption is that this growth will apply to uh the next fiscal year based on the October uh the fiscal year. So okay so this means that starting from the next fiscal year second half under the new fiscal year period changing. Yes. So we will review the contribution of the investment to the sales revenue on quarterly basis. So there may be some fluctuation in timing. However, I we intend to continue investing steadily through first quarter, second quarter, third quarter as well as the second half of the next fiscal year period.“

The company’s strategy is to accelerate investments throughout the current fiscal year, with a focus on worker marketing, which will play a central role in expanding the workforce and scaling the platform.

The intention is clear: Timee is preparing to continue on its growth reacceleration trajectory.

Shareholder Returns: A Conservative but Strategic Approach

When it comes to returning capital to shareholders, Timee’s management took a conservative stance, opting to prioritize growth investments first. However, as noted on one of the slides, “to prevent the excessive accumulation of internal reserves, any cash not utilized for growth investments is to be returned to shareholders.“ That’s not a typical comment considering that this is a Japanese management team.

They maintained overall that expansion remains the top priority, with share buybacks being considered only if capital is not fully utilized for expansion efforts. Ogawa noted:

“We would prioritize growth investments first and foremost... if we are still unable to fully utilize that budget, taking into account cash liquidity... we will also consider buybacks or other forms of shareholder returns”.

Working Capital Requirements: Managing the Cash Flow Challenge

The nature of Timee’s spot-work business requires significant liquidity to handle the daily outflow of cash to pay workers. CFO Yagi explained the operational risks associated with the company’s cash flow management:

“The cash and the deposit equivalent to the total transaction volume expected in March should be available at the end of February... otherwise the money will be just flowing out every day throughout the month”.

This remark highlights the importance of maintaining a high liquidity buffer to ensure smooth operations, particularly as large sums of money are needed to facilitate worker payments before the company receives reimbursement from clients. Yagi further added that monthly transaction volumes could exceed 10 billion yen ($62 million), underlining the scale at which Timee operates and the importance of having sufficient capital to keep its operations running smoothly.

In sum, from the earnings call, it’s clear that Timee is in a critical phase of scaling its operations, with the focus on reinvesting profits into long-term growth strategies. The company is positioning itself for a growth acceleration phase in the coming fiscal year, and the transition of its fiscal year-end is a strategic move to ensure it can fully capitalize on resources during peak demand periods. While shareholder returns are important, they are secondary to ensuring that Timee continues to expand its capabilities and market presence.

The company’s focus on strategic investments, including worker marketing, long-term hiring support, and expanding into new sectors like social care, provides a solid foundation for growth. The upcoming second fiscal quarter will be key in accelerating these investments and ensuring that Timee’s future growth story is realized.

3) Insights from the Fireside Chat with Bristlemoon Capital

In a fireside chat with Bristlemoon Capital, CEO Ryo Ogawa offered an in-depth look at Timee’s strategic vision, market positioning, and future growth opportunities. He discussed the company’s dominant market presence, expansion into long-term hiring, and potential international markets, while also addressing the consumer-to-consumer (C2C) opportunity and potential technological risks.

The C2C Market Opportunity

A significant area of future growth for Timee lies in expanding into the C2C (consumer-to-consumer) market, which can be compared to platforms like TaskRabbit. TaskRabbit is an online and mobile marketplace, founded in 2008 and acquired by IKEA Group in 2017, that connects freelance service workers (”Taskers”) with local demand for everyday help. It specializes in furniture assembly, cleaning, moving, and handyman services across thousands of cities in nine countries.

Ogawa explained that Timee’s B2C model (business-to-consumer) needs to first establish a strong foundation of trust before moving into C2C services. The key element here is reliability, as trust is crucial when workers enter private homes.

“We definitely consider that a possibility. We first wanted to establish the B2C business because we wanted to know which worker is reliable and trustworthy. That is really important when establishing C2C because you need to consider crime risk—somebody visiting your house to deliver something or entering your house to help with chores. In order to expand to this, we need to reduce that risk as much as possible.”

Timee’s ability to vet workers through its platform and gather data on worker reliability is seen as the foundation for making a transition into C2C services, where safety and trust are paramount. Once this trust is established through their existing business model, Timee believes it can expand into the growing market for at-home services, such as home repairs or personal assistance, where consumers increasingly seek flexibility and trustworthiness.

International Expansion: The Korea Opportunity

Ogawa also spoke about Timee’s ambitions for international expansion, specifically targeting South Korea. He highlighted the structural labor shortages in South Korea, which mirror those seen in Japan due to an aging population, low birth rates, and limited immigration. These demographic trends make the country an ideal market for Timee’s on-demand labor solutions.

“Our intention is to leverage the knowledge we gained in the Japanese market and provide a solution to other countries who are suffering from severe labor shortages. We see a lot of similarities between the Korean market and the Japanese market—aging society, low birth rate, and few immigrants. That’s why we see the opportunity there. We have established a very close relationship with Lotte in Korea to work together.”

Timee’s partnership with Lotte, one of South Korea’s largest conglomerates – Lotte Corporation is the fifth-largest chaebol in South Korea –, underscores the strategic importance of this market.

By adapting its Japanese business model to South Korea’s specific needs, Timee is positioning itself to expand internationally in a way that is both scalable and impactful. This move is also part of Timee’s broader global growth strategy, where the company can bring its successful platform to markets grappling with similar challenges in workforce management.

According to my estimates, the opportunity for Timee in Korea is likely in the range of 0.4x to 0.5x of the Japan opportunity.

Strategic Shift to Long-Term Hiring

A major strategic shift for Timee, discussed in the chat, involves competing with traditional job boards by offering a “try-before-you-hire” approach. This initiative allows companies to use spot work as a trial period for permanent roles, effectively solving the high turnover problems that often plague traditional recruiting methods. This long-term hiring support aims to leverage Timee’s existing infrastructure to build stronger relationships between employers and workers.

“What we are offering is that if any business is willing to hire people for the long term, we open up an additional matching service. They can use the existing spot work service as a one-time trial, and if both sides like how the trial goes, it evolves into a long-term position. This is the way we offer the benefits that job boards offer... especially in this long-term market, our advantage is the fact that they can use Timee as a one-time trial before actually hiring somebody.”

This innovative approach creates value for both workers and employers, ensuring that companies can reduce hiring risks and workers can gain a deeper understanding of their potential future roles.

Overall, one key takeaway – or rather it’s confirming part of my thesis – is that Timee possesses a lot of options to continue growing at high rates for years to come. The excerpt below confirms this as well:

“Even just talking about spot work, we still have more room to grow this existing business because we are expanding to different segments. The new areas include elderly care, which requires qualified licenses, and also the rental car business—for example, workers who drive a car from a drop-off location back to the original location. And also, how we “fight back” within the food and restaurant industry. We are trying to go against traditional job boards, which are our competitors. What we are offering is that if any business is willing to hire people for the long term, we open up an additional matching service. They can use the existing spot work service as a one-time trial, and if both sides like how the trial goes, it evolves into a long-term position. This is the way we offer the benefits that job boards offer.

Also, another future opportunity could be fintech—we lend money to the workers utilizing the credit we have from our service. And also expansion abroad. We are currently investing in a Korean version. Globally, but mainly in Asia, we try to incorporate our knowledge of managing the spot work business together with local companies.”

Technological Risks: Robotics vs. AI

Finally, Ogawa acknowledged that while AI is already part of Timee’s platform, the real long-term risk to its business model could come from robotics – particularly in logistics and other physically demanding sectors. While he noted that robotics combined with AI is a potential future threat, he emphasized that such technological disruption is still years away.

“As part of the risk, we need to consider robotics. Robotics plus AI is something we might see as a threat—for example, in logistics centers if warehouses introduce more automation. In that case, the use of spot workers would decline. But building an automated warehouse takes a lot of time; it won’t happen over the next two or three years. We might see that threat in about 10 years. In order to counter that, we are looking for the right timing to expand our business into that area as well.”

While automation and robotics may eventually reshape sectors like logistics, Ogawa’s comments suggest that Timee has time to adapt and evolve its business model, integrating technology where appropriate, without sacrificing the human elements that are central to its value proposition.

In fact, Timee decided to make the slide below the very first one in their Q1 slide deck:

4) Updated Valuation

Let’s take a quick moment to dive into Timee’s valuation. Interestingly, Timee’s stock popped 7-8% on the day of reporting, but trended down again in the subsequent days. So are we looking at an attractive opportunity here?

Read more

Today the company is almost unrecognizable to its founders. Its bold 2021 all-shares $27 billion acquisition of Refinitiv transformed LSEG into a global leader in financial data and infrastructure, now deriving nearly 98% of its revenues from proprietary data and market infrastructure.

Over the last year, however, the London Stock Exchange Group (LSEG) has faced a turbulent ride in the stock market. Trading at an all-time high back in 2025, the company has now seen its stock price fall by 25%, even dropping as much as 40% at its lowest point – reaching a 10-year low valuation.

LSEG’s stock price has now also been flat for almost six years, while its NTM P/E has come down from above 40x at one point to 19x now.

At the heart of this downturn, I believe, lies a growing fear among investors that artificial intelligence (AI) will disrupt LSEG’s core business, especially its Data & Analytics segment, which makes up nearly half of its total revenue. The launch of Claude’s Co-Work agents and the hype surrounding AI’s potential to commoditize financial data have led to indiscriminate selling, as investors worry that LSEG’s user lock-in might no longer offer the same competitive edge. As mentioned, the company’s price-to-earnings ratio (P/E) has fallen from >40x to 19x, reflecting the growing skepticism.

But is this really the beginning of the end for LSEG, or has the market overreacted?

Management argues that LSEG is more valuable in an AI-driven world, but a contrarian narrative suggests otherwise. Some critics contend that LSEG might have traded away capital-light exchange monopolies for heavy debt obligations tied to capital-intensive data assets.

Despite the panic, LSEG’s business model – heavily reliant on proprietary data, intellectual property, and market infrastructure – remains solid and highly diversified, and much of the fear revolves around whether AI could erode its core data services. Ironically, AI companies – the very entities some view as a threat to LSEG’s business – are also its clients, relying on the company for high-quality data to power their models.

It’s a somewhat complicated dynamic: AI disruption versus AI dependence.

So, as the stock plunges, it’s important to ask: are investors missing the bigger picture?

Adding fuel to the fire, Elliott Management, the activist hedge fund, has recently taken a position in LSEG, pushing for changes, signaling that the company’s current valuation might be undervalued.

This post goes beyond LSEG’s prestigious brand and delves into the core investment hypothesis. Rather than simply confirming well-understood “beliefs,” we’ll take a critical look at whether LSEG is truly an “all-weather” compounder – EPS CAGR-ed at 15% over the last 20 years – poised for double-digit returns or a “fixer-upper” masking weaknesses through inflated “adjusted” metrics.

Drawing inspiration from Bill Miller’s famous 90-second pitch approach, we’ll – as always – at first break down five key pillars that could either make LSEG a great business pitch or a cautionary tale of private equity wealth transfer. We’ll also highlight the four key narratives that are dragging the stock down. In short, we’ll build a hypothesis that will then be tested throughout the comprehensive analysis that follows.

We’ll address the AI anxiety that has led to a valuation dislocation of course, and evaluate whether the Microsoft partnership will turn out to be a strategic masterstroke or a costly gamble, locking in billions in capital, to rescue a cracking narrative. With management pushing for AI integration and expansion into new markets, is LSEG positioned for a high-growth future, or will its fundamental weaknesses hold it back?

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Here’s what I cover in this 18,000-word deep dive:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why LSEG and Why Now?

• 1) Understanding the Business of the LSEG

  • Business History

  • Product

  • Business Operations

  • Customers

  • Industry & Competitive Landscape

• 2) Business Quality

  • Competitive Advantages Analysis

  • Pricing Power

  • Quantitative Indicators of a Moat

  • Durability and Direction of the Moat

• 3) Management

• 4) Risks & Financial Health

• 5) Balance Sheet Perspective

• 6) Other Items

• 7) Valuation

  • Past Growth

  • Future Growth (including a TAM analysis and identifying key growth drivers)

  • My Valuation Work (true owner earnings, scenario analysis)

• Conclusion

• Appendix

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Hypothesis

Read more

I remember about a year ago, a few members of the community and I decided to commit four weeks to dive deep into the world of serial acquirers – a space that I had been fascinated by for a long time. We spent hours studying, sharing, and discussing theoretical concepts, reading up on acquisition strategies and various types of acquirers (e.g. generalists vs. specialists, programmatic vs. tactical, global vs. regional, etc.), and absorbing all the wisdom shared by REQ Capital specifically, whose founders recently released a book, too. Here’s a quote from that very book that sums up the attractiveness of the serial acquirer model:

This journey eventually led us to study how serial acquirers create long-term shareholder value, particularly through the lens of capital allocation and acquisitions. I remember feeling a bit intimidated at the complexity of businesses like Topicus and Constellation Software (CSI), given how intricate their structures are. But this business model deep dive was also an eye-opener – especially when I realized how these companies – and their management teams in particular – operate with an entirely different mindset compared to most other firms.

Something else I thought about recently, regarding serial acquirers, was prompted by a tweet I came across. It was about CSI and how, while their business is well-run, they may not be in the top 15 companies anyone should invest in. The tweet argued that owning CSI might not be the best choice, considering the opportunity cost.

And honestly, after thinking about it, I agree with some of the sentiment. Companies like CSI and Topicus bring a unique advantage to the table that many others don’t – an almost infinite runway, great visibility on ROIIC, and internal diversification – to mention just a few.

Subscribe now

But when you get to the core of it, these are businesses that thrive on capital allocation rather than incredibly strong structural advantages that other single-product/-service companies (like Airbnb, Uber, Timee, Hermes, Monster Beverage, Wise, or Interactive Brokers) may possess and that often neatly fit into your textbook moat taxonomy.

This got me thinking about the broader question of what really matters in investing:

Is it the business itself, or is it the management that makes the biggest impact on long-term returns?

I don’t have a definitive answer, but it’s something I constantly wrestle with. And it’s something we will explore in this deep dive as the answer is very relevant to a potential CSI or Topicus investment thesis, where management’s ability to deploy capital efficiently seems to outweigh other weaknesses.

The Software Selloff

When we concluded our serial acquirers deep dive around a year ago, we didn’t find any opportunities that got us excited from a valuation point of view. Today, as most of my readers will know, valuations in anything software-related have come down significantly over the last few months.

The software space, and specifically the SaaS industry, is currently experiencing what some are calling the “SaaSpocalypse” or “SaaSmaggedon.” The valuation of software companies – especially those in the SaaS category – has taken a BIG hit, and the market seems to be in the midst of a major reset. A lot of the high-growth, high-valuation software stocks have been hit hard, as we can see in the three charts below. Software stocks have experienced huge declines, particularly in the past year, as AI-driven fears, coupled with broader economic pressures, pushed valuations lower across the board. And arguably to levels that now make an entry attractive.

Or at least it is intelligent, contrarian investors’ duty to take a look…

Take a look at the first chart: it compares the prime book percentage of US net exposure between software and semiconductors (the blue and brown lines).

The software sector had been on an upward trajectory, peaking in 2023, but ever since, the sector has been on a steady, and more recently quite sharp, decline, diverging sharply from its semiconductor counterpart.

Subscribe now

Then, in this second chart (below), we can see the 1-year performance of an equal-weight basket of 31 software stocks – a massive 37.29% drop, underperforming the S&P by a staggering 45%+, showing how dramatically the market has turned on software companies in the past year. This is a clear indication of how growth stocks (especially in tech) have fallen out of favor.

In many ways, this broader sell-off makes it seem like the entire software sector is in trouble. Yet, I believe there’s a distinct lack of nuance in how the market is treating different types of software companies. Software is being viewed as one giant category, without differentiating between SaaS companies that are vulnerable to AI disruption and VMS companies like Topicus, which arguably are far less exposed to the risks of AI replacing their core offerings.

Yet, my equal-weight basket of VMS-/software-focused acquirers (Chapter Group, Lumine Group, Topicus, Roper Technologies, Constellation Software, and Vitec Software) also underperformed the market by a large magnitude (an even bigger one).

This brings me to a key point: Vertical Market Software (VMS) is arguably, in many ways, a safer place to invest in software today. Unlike general SaaS firms that compete on coding costs, VMS companies compete on trust and reliability. Their products are often deeply embedded in their customers’ operations – mission-critical solutions that simply can’t be replaced by AI in the near future. Switching costs are high.

In the broader SaaS market, the fear of AI disruption is real. AI tools could potentially replace simpler, off-the-shelf software solutions like Monday.com or Salesforce systems, learning platforms like Duolingo, or communication platforms (like Zoom). Goldman Sachs, in fact, proposed the following long- and short-baskets:

But again, for VMS businesses, it’s a different story. These companies have built long-term customer relationships based on the reliability of their specialized software. And while AI might be used to enhance some of these systems, it’s highly unlikely that customers will replace their mission-critical software just because a new AI-powered tool enters the market.

A Stock Picker’s Dream

So this indiscriminate sell-off across the software sector has opened up what I see as a huge opportunity for intelligent investors. While the broader market has sold off software indiscriminately, this is exactly the kind of environment where a stock picker’s dream emerges.

The market has largely lumped all software stocks together, without taking the time to distinguish between those that are particularly vulnerable to AI disruption and those that are less exposed to this risk. This is where Topicus, Constellation, and other VMS serial acquirers like Vitec Software or Chapter Group come in: these are businesses with strong fundamentals, high margins, and resilient growth that are trading at attractive multiples.

When deciding which VMS acquirer to take a closer look at, my gut feeling was that Topicus is possibly the more attractive opportunity than CSI, given the size constraints that Topicus’ parent CSI faces.

Alright, it’s time to finally move on to the deep dive. As we transition into the analytical work and our research findings regarding Topicus, it’s important to recognize the sheer complexity and depth of what we’re about to explore. This won’t be just a quick overview – this will be a massive research effort that will require careful analysis of Topicus’ acquisition strategy, capital allocation capabilities, growth prospects, and its place within the broader VMS market. Given the complexity of the company’s structure, ownership models, and financial intricacies, this analysis will be split into multiple parts – four in total – of a larger series. We’ll break down how Topicus differentiates itself from its peers, the risks and opportunities it faces, and the unique business model that has positioned it for long-term success. So, buckle up – this deep dive into Topicus will cover every angle you can imagine, and I’m excited to take you on this detailed journey.

Here’s what I plan cover in this series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Topicus and Why Now?

• 1) Understanding Topicus

  • 1.1. The History of Topicus

  • 1.2. Understanding the Ownership Structure of Topicus

  • 1.3. Product

  • 1.4. Business Operations

  • 1.5. Customers

  • 1.6. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Management Philosophy

  • 3.3. Integrity, Incentives, and Compensation

  • 3.4. Capital Allocation and Management Talent

  • 3.5. Board of Directors

• 4) Risks

  • 4.1. The Elephant in the Room: AI

  • 4.2. Topicus vs. Chapters Group

  • 4.3. The Dutch Wealth Tax

  • 4.4. False Moat Analysis

• 5) Financial Health

  • 5.1. Balance Sheet Health

  • 5.2. Operating Perspective

  • 5.3. Off-Balance Sheet Items & Hidden Risks

• 6) Sentiment Analysis & Thoughts on Timing

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis & discussion of the European market fragmentation)

  • 7.3. Recent Strategic Move Toward Minority Stakes

  • 7.4. Valuation Work

• Conclusion

• Appendix

So without further ado, let’s go into it

Disclaimer:

The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Pitch

Read more

I’ll also have a look at the current market sentiment and which support level I am personally keeping a close eye on. If you have followed along this far, you know that Topicus is a complex beast. This final chapter is where we cut through that complexity to find the signal in the noise.

Here’s the table of contents again – In this part, we will focus on chapters six and seven:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Topicus and Why Now?

• 1) Understanding Topicus

  • 1.1. The History of Topicus

  • 1.2. Understanding the Ownership Structure of Topicus

  • 1.3. Product

  • 1.4. Business Operations

  • 1.5. Customers

  • 1.6. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Management Philosophy

  • 3.3. Integrity, Incentives, and Compensation

  • 3.4. Capital Allocation and Management Talent

  • 3.5. Board of Directors

• 4) Risks

  • 4.1. The Elephant in the Room: AI

  • 4.2. Topicus vs. Chapters Group

  • 4.3. The Dutch Wealth Tax

  • 4.4. False Moat Analysis

• 5) Financial Health

  • 5.1. Balance Sheet Health

  • 5.2. Operating Perspective

  • 5.3. Off-Balance Sheet Items & Hidden Risks

• 6) Sentiment Analysis & Thoughts on Timing

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis & discussion of the European market fragmentation)

  • 7.3. Recent Strategic Move Toward Minority Stakes

  • 7.4. Valuation Work

• Conclusion

• Appendix

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Part 6 – Sentiment Analysis & Thoughts on Timing

Read more

By now, we’ve discussed Topicus’ strong growth strategy and capital-light model, but no investment comes without its challenges. One of the most critical risks on the horizon is the potential impact of AI disruption. As we explore in this part of the series, it’s absolutely crucial for investors to assess whether AI will serve as a catalyst for growth or if it could fundamentally disrupt Topicus’ core value proposition. Given the rise of AI-powered solutions across industries, understanding this risk will help you gauge the long-term viability of the company’s moat and its competitive positioning. Only if you understand this risk and arrive at a conclusion regarding its impact on Topicus’ terminal value, you will be able to value Topicus.

Additionally, we’ll look closely at Topicus’ balance sheet, evaluating its liquidity, leverage, and solvency to see how well the company is positioned to navigate any financial turbulence.

So without further ado, let’s go into it.

Part 1:

Part 2:

Table of contents of the series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Topicus and Why Now?

• 1) Understanding Topicus

  • 1.1. The History of Topicus

  • 1.2. Understanding the Ownership Structure of Topicus

  • 1.3. Product

  • 1.4. Business Operations

  • 1.5. Customers

  • 1.6. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Management Philosophy

  • 3.3. Integrity, Incentives, and Compensation

  • 3.4. Capital Allocation and Management Talent

  • 3.5. Board of Directors

• 4) Risks

  • 4.1. The Elephant in the Room: AI

  • 4.2. Topicus vs. Chapters Group

  • 4.3. The Dutch Wealth Tax

  • 4.4. False Moat Analysis

• 5) Financial Health

  • 5.1. Balance Sheet Health

  • 5.2. Operating Perspective

  • 5.3. Off-Balance Sheet Items & Hidden Risks

• 6) Sentiment Analysis & Thoughts on Timing

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis & discussion of the European market fragmentation)

  • 7.3. Recent Strategic Move Toward Minority Stakes

  • 7.4. Valuation Work

• Conclusion

• Appendix

Subscribe now

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Part 4 – Risks

4.1. The Elephant in the Room: AI

If you’ve read the introduction to this deep dive series – and if you follow the markets closely, as I assume 100% of my readers do – you’ll know that AI risk is, and should be, front and center in this discussion.

And frankly, I would argue that this segment is likely the most relevant part of the entire series. The reason for this is simple: the current valuation of Topicus isn’t particularly demanding if the company can continue to execute its playbook for the long haul. That said, while I was working on this series, Topicus reported its Q4 results, and while we’ve seen undeniable continued success – the company reported a +20% topline growth, +23% FCFA2S growth (with a +40% quarter-on-quarter increase), and 6% organic maintenance growth – these results may not mean much if, in the coming years (4-5 years? 10 years?), the underlying business model or economics of the company face significant disruption.

And that’s where AI’s role comes into play. As investors in Topicus or potential investors, understanding this question is crucial. The impact of AI on business models is not just a headline – it’s an existential concern that could shape the next decade for many companies.

So, here’s the approach I’ve taken: I’ve spent several hours curating the 15-20 most insightful articles, podcasts, interviews, and CEO commentary on the “AI will eat software” narrative (all linked further below). I’ve gathered opinions from the smartest minds, industry experts, and business operators. After compiling all this, I used AI to summarize the key points that have been raised, to provide a more structured understanding. Quite frankly, this worked worse than I expected, and I actually read all the material I had at hand again myself and added my own commentary. I backed up certain points of view with relevant quotes from the materials.

Anyway, overall this curated resource list will serve as the foundation for the risk assessment section of this Topicus deep dive, but let me be clear – these insights are equally relevant for any VMS acquirer or software company navigating this new AI-driven landscape.

I will, of course, share my own conclusions, but more importantly, I think you should arrive at your own conclusion, and for that, I attempt to provide a comprehensive list of arguments for each side of the debate.

I believe there are three plausible scenarios for how AI could impact VMS acquirers in the future. The aim is for you, the readers, to arrive at your own independent conclusions based on the data and analysis presented.

The Three Scenarios

A) VMS Acquirers Are in a Defensible Position (Neutral Impact)

Read more

As we continue our exploration of this dynamic business, we will uncover the strengths that set Topicus apart in the Vertical Market Software (VMS) sector, as well as the leadership principles that guide its strategic growth, a scenario analysis of various reinvestment rates, the relevance of organic growth in this context, acquisition multiples paid, and so much more ...

By the end of this post (around 11,000 words), you’ll have a clear understanding of what makes Topicus an exceptional company with both a strong business model and a management team (+ board) primed for long-term success.

Here’s the table of contents of the series once again:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Topicus and Why Now?

• 1) Understanding Topicus

  • 1.1. The History of Topicus

  • 1.2. Understanding the Ownership Structure of Topicus

  • 1.3. Product

  • 1.4. Business Operations

  • 1.5. Customers

  • 1.6. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Management Philosophy

  • 3.3. Integrity, Incentives, and Compensation

  • 3.4. Capital Allocation and Management Talent

  • 3.5. Board of Directors

• 4) Risks

  • 4.1. The Elephant in the Room: AI

  • 4.2. Topicus vs. Chapters Group

  • 4.3. The Dutch Wealth Tax

  • 4.4. False Moat Analysis

• 5) Financial Health

  • 5.1. Balance Sheet Health

  • 5.2. Operating Perspective

  • 5.3. Off-Balance Sheet Items & Hidden Risks

• 6) Sentiment Analysis & Thoughts on Timing

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis & discussion of the European market fragmentation)

  • 7.3. Recent Strategic Move Toward Minority Stakes

  • 7.4. Valuation Work

• Conclusion

• Appendix

So without further ado, let’s go into it

Here’s part 1:

Disclaimer:

The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Read more

This journey eventually led us to study how serial acquirers create long-term shareholder value, particularly through the lens of capital allocation and acquisitions. I remember feeling a bit intimidated at the complexity of businesses like Topicus and Constellation Software (CSI), given how intricate their structures are. But this business model deep dive was also an eye-opener – especially when I realized how these companies – and their management teams in particular – operate with an entirely different mindset compared to most other firms.

Something else I thought about recently, regarding serial acquirers, was prompted by a tweet I came across. It was about CSI and how, while their business is well-run, they may not be in the top 15 companies anyone should invest in. The tweet argued that owning CSI might not be the best choice, considering the opportunity cost.

And honestly, after thinking about it, I agree with some of the sentiment. Companies like CSI and Topicus bring a unique advantage to the table that many others don’t – an almost infinite runway, great visibility on ROIIC, and internal diversification – to mention just a few.

Subscribe now

But when you get to the core of it, these are businesses that thrive on capital allocation rather than incredibly strong structural advantages that other single-product/-service companies (like Airbnb, Uber, Timee, Hermes, Monster Beverage, Wise, or Interactive Brokers) may possess and that often neatly fit into your textbook moat taxonomy.

This got me thinking about the broader question of what really matters in investing:

Is it the business itself, or is it the management that makes the biggest impact on long-term returns?

I don’t have a definitive answer, but it’s something I constantly wrestle with. And it’s something we will explore in this deep dive as the answer is very relevant to a potential CSI or Topicus investment thesis, where management’s ability to deploy capital efficiently seems to outweigh other weaknesses.

The Software Selloff

When we concluded our serial acquirers deep dive around a year ago, we didn’t find any opportunities that got us excited from a valuation point of view. Today, as most of my readers will know, valuations in anything software-related have come down significantly over the last few months.

The software space, and specifically the SaaS industry, is currently experiencing what some are calling the “SaaSpocalypse” or “SaaSmaggedon.” The valuation of software companies – especially those in the SaaS category – has taken a BIG hit, and the market seems to be in the midst of a major reset. A lot of the high-growth, high-valuation software stocks have been hit hard, as we can see in the three charts below. Software stocks have experienced huge declines, particularly in the past year, as AI-driven fears, coupled with broader economic pressures, pushed valuations lower across the board. And arguably to levels that now make an entry attractive.

Or at least it is intelligent, contrarian investors’ duty to take a look…

Take a look at the first chart: it compares the prime book percentage of US net exposure between software and semiconductors (the blue and brown lines).

The software sector had been on an upward trajectory, peaking in 2023, but ever since, the sector has been on a steady, and more recently quite sharp, decline, diverging sharply from its semiconductor counterpart.

Then, in this second chart (below), we can see the 1-year performance of an equal-weight basket of 31 software stocks – a massive 37.29% drop, underperforming the S&P by a staggering 45%+, showing how dramatically the market has turned on software companies in the past year. This is a clear indication of how growth stocks (especially in tech) have fallen out of favor.

In many ways, this broader sell-off makes it seem like the entire software sector is in trouble. Yet, I believe there’s a distinct lack of nuance in how the market is treating different types of software companies. Software is being viewed as one giant category, without differentiating between SaaS companies that are vulnerable to AI disruption and VMS companies like Topicus, which arguably are far less exposed to the risks of AI replacing their core offerings.

Yet, my equal-weight basket of VMS-/software-focused acquirers (Chapter Group, Lumine Group, Topicus, Roper Technologies, Constellation Software, and Vitec Software) also underperformed the market by a large magnitude (an even bigger one).

This brings me to a key point: Vertical Market Software (VMS) is arguably, in many ways, a safer place to invest in software today. Unlike general SaaS firms that compete on coding costs, VMS companies compete on trust and reliability. Their products are often deeply embedded in their customers’ operations – mission-critical solutions that simply can’t be replaced by AI in the near future. Switching costs are high.

In the broader SaaS market, the fear of AI disruption is real. AI tools could potentially replace simpler, off-the-shelf software solutions like Monday.com or Salesforce systems, learning platforms like Duolingo, or communication platforms (like Zoom). Goldman Sachs, in fact, proposed the following long- and short-baskets:

But again, for VMS businesses, it’s a different story. These companies have built long-term customer relationships based on the reliability of their specialized software. And while AI might be used to enhance some of these systems, it’s highly unlikely that customers will replace their mission-critical software just because a new AI-powered tool enters the market.

A Stock Picker’s Dream

So this indiscriminate sell-off across the software sector has opened up what I see as a huge opportunity for intelligent investors. While the broader market has sold off software indiscriminately, this is exactly the kind of environment where a stock picker’s dream emerges.

The market has largely lumped all software stocks together, without taking the time to distinguish between those that are particularly vulnerable to AI disruption and those that are less exposed to this risk. This is where Topicus, Constellation, and other VMS serial acquirers like Vitec Software or Chapter Group come in: these are businesses with strong fundamentals, high margins, and resilient growth that are trading at attractive multiples.

When deciding which VMS acquirer to take a closer look at, my gut feeling was that Topicus is possibly the more attractive opportunity than CSI, given the size constraints that Topicus’ parent CSI faces.

Alright, it's time to finally move on to the deep dive. As we transition into the analytical work and our research findings regarding Topicus, it’s important to recognize the sheer complexity and depth of what we’re about to explore. This won’t be just a quick overview – this will be a massive research effort that will require careful analysis of Topicus’ acquisition strategy, capital allocation capabilities, growth prospects, and its place within the broader VMS market. Given the complexity of the company’s structure, ownership models, and financial intricacies, this analysis will be split into multiple parts – four in total – of a larger series. We’ll break down how Topicus differentiates itself from its peers, the risks and opportunities it faces, and the unique business model that has positioned it for long-term success. So, buckle up – this deep dive into Topicus will cover every angle you can imagine, and I’m excited to take you on this detailed journey.

Here’s what I plan cover in this series:

• “BAM BAM BAM BAM BAM” 90-Second Pitch – Why Topicus and Why Now?

• 1) Understanding Topicus

  • 1.1. The History of Topicus

  • 1.2. Understanding the Ownership Structure of Topicus

  • 1.3. Product

  • 1.4. Business Operations

  • 1.5. Customers

  • 1.6. Industry & Competitive Landscape

• 2) Business Quality

  • 2.1. Competitive Advantages Analysis

  • 2.2. Other Thoughts on Business Quality

• 3) Management and Governance

  • 3.1. Management Background

  • 3.2. Integrity, Incentives, and Compensation

  • 3.3. Capital Allocation and Management Talent

  • 3.4. Board of Directors

• 4) Risks

  • 4.1. The Elephant in the Room: AI

  • 4.2. Topicus vs. Chapters Group

  • 4.3. The Dutch Wealth Tax

  • 4.4. False Moat Analysis

• 5) Financial Health

  • 5.1. Balance Sheet Health

  • 5.2. Operating Perspective

  • 5.3. Off-Balance Sheet Items & Hidden Risks

• 6) Sentiment Analysis & Thoughts on Timing

• 7) Valuation

  • 7.1. Past Growth

  • 7.2. Future Growth (including a TAM analysis & discussion of the European market fragmentation)

  • 7.3. Recent Strategic Move Toward Minority Stakes

  • 7.4. Valuation Work

• Conclusion

• Appendix

Disclaimer:

The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Read more

• If you’re NEW on the blog, check out this post first!

• Here you can find all of my podcasts.

Table of Contents

1. Deep Dives

   • Free Sample Deep Dives

   • Thematic Deep Dives

   • All Deep Dives

   • Earnings Reviews

2. Valuation & Spreadsheets

3. Process

4. Market Commentary

5. Portfolio Updates

Subscribe now

1. Deep Dives

($ = for subscribers only)

Free Sample Deep Dives:

• 2025-10: InPost ($INPST)

• 2025-05: Monday.com ($MNDY)

• 2025-05: DigitalOcean ($DOCN) - Part 1

• 2025-04: Novo Nordisk ($NVO)

• 2025-04: Computer Modelling Group ($CMG.TO)

Thematic Deep Dives:

• 2026-02: Video Game Stocks (Nintendo, Sony, Unity, Roblox, Take-Two) - ($)

• 2026-01: Investing in Software When AI Agents Arrive – A Framework for Who Gets Disrupted

• 2025-12: 26 Stock Ideas for 2026 - ($)

• 2025-10: An Untapped Basket Trade - ($)

• 2025-10: Brokerage Business Industry Analysis - ($)

• 2025-07: Everyone Is Underweight AI! - ($)

• 2024-10: Alcoholic Beverages Sector Analysis - ($)

All Deep Dives:

• 2026-03: Fair Isaac ($FICO) – Part 4 - ($)

• 2026-03: Fair Isaac ($FICO) – Part 3 - ($)

• 2026-03: Fair Isaac ($FICO) – Part 2 - ($)

• 2026-03: Fair Isaac ($FICO) – Part 1 - ($)

• 2026-03: London Stock Exchange Group ($LSEG) - ($)

• 2026-03: Topicus.com Inc. ($TOI) – Master Piece ($)

• 2026-03: Topicus.com Inc. ($TOI) – Part 4 - ($)

• 2026-02: Topicus.com Inc. ($TOI) – Part 3 - ($)

• 2026-02: Topicus.com Inc. ($TOI) – Part 2 - ($)

• 2026-02: Topicus.com Inc. ($TOI) – Part 1 - ($)

• 2026-02: Universal Music Group ($UMG) - ($)

• 2026-02: Revisiting Novo Nordisk ($NVO) - ($)

• 2026-01: Revisiting Edenred ($EDEN) - ($)

• 2026-01: Revisiting Uber ($UBER) - ($)

• 2026-01: A Misunderstood Founder-Led Acquirer Trading <10 Fwd. FCF - ($)

• 2026-01: Trainline ($TRN) - ($)

• 2025-12: Deep Dive: Nippon Paint Holdings ($4612) - ($)

• 2025-12: HelloFresh SE ($HFG) - ($)

• 2025-11: Wix.com ($WIX) - ($)

• 2025-11: Revisiting CMG ($CMG.TO) - ($)

• 2025-11: Revisiting Timee ($215A)

• 2025-11: Fever-Tree ($FEVR) - ($)

• 2025-10: Revisiting Wise ($WISE) - ($)

• 2025-10: Timee Inc. ($215A) - ($)

• 2025-09: Revisiting UP Fintech ($TIGR) - ($)

• 2025-09: Duolingo ($DUOL)

• 2025-09: Nathan’s Famous ($NATH) - ($)

• 2025-09: Revisiting Edenred ($EDEN) - ($)

• 2025-09: Tiger Brokers ($TIGR) - ($)

• 2025-08: 22 Stock Ideas Too Interesting to Ignore! - ($)

• 2025-08: Wix.com ($WIX) - ($)

• 2025-08: Revisiting CMG ($CMG) - ($)

• 2025-08: Revisiting Novo Nordisk ($NVO) - ($)

• 2025-08: Revisiting Novo Nordisk ($NVO) - ($)

• 2025-08: Revisiting CMG ($CMG) - ($)

• 2025-07: Zalaris ASA ($ZAL) - ($)

• 2025-07: LVMH ($LVMH) - ($)

• 2025-06: Edenred ($EDEN) - ($)

• 2025-06: Wise ($WISE): Will Stablecoins Kill Wise, Visa, and Mastercard? - ($)

• 2025-06: Ashtead Technology ($AT) - ($)

• 2025-06: innoscripta AG ($1INN) - ($)

• 2025-06: Why Wise’s “Governance Problem” Might Be Its Greatest Strength

• 2025-06: Wise ($WISE) - ($)

• 2025-05: DigitalOcean ($DOCN) - Part 4 - ($)

• 2025-05: DigitalOcean ($DOCN) - Part 3 - ($)

• 2025-05: DigitalOcean ($DOCN) - Part 2 - ($)

• 2025-05: DigitalOcean ($DOCN) - Part 1

• 2025-05: Alphabet ($GOOG) - ($)

• 2025-05: Monday.com ($MNDY)

• 2025-05: Evolution Gaming ($EVO) - ($)

• 2025-04: Brockhaus Technologies ($BKHT) - ($)

• 2025-04: Novo Nordisk ($NVO)

• 2025-04: Computer Modelling Group ($CMG.TO)

• 2025-03: Moncler ($MONC) - ($)

• 2025-03: Alphabet ($GOOG) - ($)

• 2025-02: Meta Platforms ($META) - ($)

• 2025-02: Kering ($KER) - ($)

• 2025-01: Uber ($UBER) - ($)

• 2024-12: Yeti Holdings ($YETI) - ($)

• 2024-12: Meta Platforms ($META) - ($)

• 2024-10: Celsius Holdings ($CELH) - ($)

• 2024-07: Paycom ($PAYC) - Part 3 - ($)

• 2024-07: Paycom ($PAYC) - Part 2 - ($)

• 2024-07: Paycom ($PAYC) - Part 1 - ($)

Earnings Reviews:

• 2026-03: The Most Absurd Stock Valuation in the Market Right Now? - ($)

• 2026-03: Earnings Review: Timee ($215A) - ($)

• 2025-08: Earnings Review Monday.com ($MNDY) - ($)

• 2025-07: Earnings Review: Meta Platforms ($META)

• 2025-07: Earnings Review: Ashtead Technology ($AT) - ($)

• 2025-07: Earnings Review: Brockhaus Technologies ($BKHT) - ($)

• 2025-06: Earnings Review: Brockhaus Technologies ($BKHT) - ($)

• 2025-05: Earnings Review: Computer Modelling Group ($CMG.TO) - ($)

2. Valuation & Spreadsheets

($ = for subscribers only)

• 2025-11: My Updated TSR Model for Valuing High-Quality Growth Companies - ($)

• 2025-10: Value Investing 3.0 & The Next Evolution of Stock Screening - ($)

• 2025-09: How I Built My Investing Dashboard on Koyfin (And Why It Changed My Process) - ($)

• 2025-08: The Ultimate Base Rates Guide – From Optimism to Realism in Valuation - ($)

• 2025-07: The Total Shareholder Return Valuation Method: A Practical Framework for Long-Term Investors - ($)

• 2025-03: Can Simple Metrics Trump Complex Valuation Approaches? The Truth About Multiples ... - ($)

• 2024-09: The World’s Most Expensive Stock Markets: A Look at Global Valuations! - ($)

3. Process

($ = for subscribers only)

My Perception Change Framework:

• 2026-01: My “Perception Change” Framework – Technical Analysis (Part 3) - ($)

• 2026-01: My “Perception Change” Framework – Qualitative Instruments (Part 2) - ($)

• 2026-01: Playing a Different Game: When Fundamentals Aren’t Enough Anymore! (Part 1)

• 2025-03: From Soros to Buffett: Exploring the Art and Science of Market Timing - ($)

Learning From Well-Known Investors

• 2025-12: Learning from Henry Ellenbogen

• 2025-10: 7 Timeless Takeaways from Peter Lynch’s First Interview in Years!

• 2025-03: Learning from Rob Vinall! - ($)

• 2025-02: 10 Lessons from Li Lu’s Newest Speech on Global Value Investing!

• 2024-12: Inside Jeff Bezos’ Mind: Lessons on Growth, Leadership, and the Future of Humanity

• 2024-12: 10 Lessons From Chris Mayer’s Recent Interview!

• 2024-10: Unpacking Nick Sleep’s Robustness Ratio: A Deep Dive into Customer-Centric Moats - ($)

Process-Oriented Posts:

• 2026-03: The 10 Hidden Dangers of the PE Ratio: The Definitive Guide to Wall Street’s Most Overused Metric

• 2025-12: What Prediction Markets Reveal About Stock Picking

• 2025-11: How to Play the Coming Oil Supply Crunch: A Simple Mental Model for a Complicated Commodity Cycle - ($)

• 2025-11: The Subtle Art of Capital Allocation

• 2025-10: Shameless Cloning 2.0: Pabrai’s Idea, Upgraded for 2026 - ($)

• 2025-10: Flexing a Moat Too Hard? How Twitch Lost What Looked Unbreakable!

• 2025-10: Timing the Market or Owning the Business? The Eternal Investor’s Dilemma

• 2025-09: The Two Faces of Conviction: Speed, Patience, and What Really Wins in Markets

• 2025-08: The 3 Pillars of Smart Decision-Making! – And What Gold Teaches Us About Them - ($)

• 2025-07: The Investor’s Real Edge? Subtraction

• 2025-06: Build the Portfolio Only You Could Build: Turning Experience Into an Investing Edge

• 2025-06: When the Wisdom of Crowds Turns Mad!

• 2025-05: Why Not All Growth Is Created Equal: A Rule of Thumb for Pricing Power - ($)

• 2025-05: Forget ROIC! This Metric Tells You How Well a Business Really Compounds - ($)

• 2025-05: From Reported to Real: The Hidden Economics of Novo Nordisk’s Cash Flow

• 2025-04: Thinking in Bets: What Poker and Horse Racing Teach Us About Markets

• 2025-04: The Equity Yield Curve: Why the Long Game Pays Better Than You Think - ($)

• 2025-04: 4 Ways to Assess The Current State of the US Stock Market and Its Future Prospects - ($)

• 2025-03: Has the US Market Left The “Zone of Reasonableness”? Decoding Buffett’s Wisdom - ($)

• 2025-03: Some Thoughts on Taking Calculated Risks Early in Your Investing Journey - ($)

• 2025-03: Why I’m More Successful Than Elon Musk - ($)

• 2025-03: When to Buy, When to Sell? A Surprising Paradox in Long-Term Investing + A Rule of Thumb - ($)

• 2025-02: The Confidence Paradox: Cash Management in Roaring Markets - ($)

• 2025-02: Logarithms, S-Curves, and the Truth About Gaining Investing Expertise! - ($)

• 2025-01:Why the Best Investment Opportunities Are to Be Found Where No One Is Looking! - ($)

• 2025-01: A Reinvention of the Rule of 40? Invest Smarter with the Rule of X! - ($)

• 2025-01: Triple-Digit Returns: Luck, Leverage, or Illusion? - ($)

• 2024-12: The Power of Asymmetric Bets in Stock Investing

• 2024-12: The Tax Trap: Why Long-Term Compounders Deserve a Long-Term Commitment - ($)

• 2024-12: 5 Lessons from Roger Federer’s Dartmouth Speech That Can Make You a Better Investor

• 2024-12: Why Cryptocurrencies Become Less Risky as Prices Rise & Vice Versa! - ($)

• 2024-11: Navigating Social Media’s Investing Advice: Separating the Wheat from the Chaff

• 2024-11: One of My Most Underrated Tools for Investment Idea Generation: Fund Letters - ($)

• 2024-11: Why Investing Shortcuts Won’t Get You Warren Buffett Returns!

• 2024-10: Getting Started the Right Way: 5 Timeless Lessons from a 10-Year-Old Ian Cassel Blog Post

• 2024-10: Why Trimming Your Portfolio Isn’t the Solution: Focus on Selectivity Instead! - ($)

• 2024-09: The ULTIMATE Beginner’s Guide to Investing in Stocks (2024 Edition) - ($)

• 2024-09: The Passive Investing Illusion

• 2024-08: Framework First!

• 2024-07: Why Compounding Doesn’t Work the Way You Think It Does! - ($)

4. Market Commentary

• 2026-03: South Sea Bubble 2.0? Notes from the 2026 Fundsmith AGM

• 2026-03: The “Citrini Bottom” – The Great Software Re-Rating of 2030

• 2026-02: Big Tech’s $5 Trillion AI Sinkhole?

• 2026-01: Investing in Software When AI Agents Arrive – A Framework for Who Gets Disrupted

• 2026-01: Investing in China When the Rules Are Changing: Opportunity, Illusion, and Tail Risk - ($)

• 2025-11: The Next Subprime? Jeffrey Gundlach’s Deeply Bearish Take On Private Credit

• 2025-09: Brockhaus Technologies and the Fragile Foundation of Policy-Driven Demand - ($)

• 2025-08: Finding Opportunity in the Market’s Blind Spots! - ($)

• 2025-08: Is It Time to Raise Cash Again? My Read on the Market’s “Top-ish” Signals

• 2025-07: Open Letter to Marco Brockhaus, CEO of Brockhaus Technologies AG

• 2025-07: Everyone Is Underweight AI! - ($)

• 2025-07: J.P. Morgan Beat the Tech Giants. Who’s Next? - ($)

• 2025-06: Everything You Thought Was Safe… Isn’t Anymore! – Jeffrey Gundlach Unpacks the Shift

• 2025-06: The AI Shockwave: Why Tech Is Riskier Now Than Ever Before

• 2025-05: Rob Vinall on Tariffs, EVs, and the Future of Investing in China

• 2025-05: You Missed the Bottom? Read This!

• 2025-05: Everyone Thinks the Market Is Doomed! But The Data Says Otherwise...

• 2025-04: From U.S. Premium to Global Paranoia: A New Era for Investors? - ($)

• 2025-04: Trump’s Tariff Playbook, the Fed’s Dilemma, and the Risk of Undermining Market Confidence: Key Takeaways from Citi’s Nathan Sheets - ($)

• 2025-04: The Most Irrelevant Earnings Season the World of Stocks Has Ever Seen? - ($)

• 2025-04: Three Probability Lenses on America’s Market Outlook

• 2025-04: Navigating the Pendulum: How Market Whiplash and “Trumpism” Are Reshaping U.S. Exceptionalism - ($)

• 2025-04: Forced Liquidations Still Looming? Jeffrey Gundlach’s Market Warnings - ($)

• 2025-04: Black Monday Looms: Why I’m Ready—and You Should Be Too - ($)

• 2025-03: What Do Ray Dalio and Salesforce’s CEO Know about the Future that You Don’t? - ($)

• 2025-03: Inside the Mind of Jim Chanos: 8 Lessons Every Investor Needs to Know - ($)

• 2025-03: Is the Market on the Brink of Another 1929 Crash? - ($)

• 2025-02: Meta’s AR Ambitions: WhatsApp as a Strategic Edge in the Smart Glasses Race? - ($)

• 2025-02: Who’s Next? The Inevitable AI Shake-Up Headed for the S&P 500 - ($)

• 2025-02: Not All Reinvestment Is the Same: How Two Companies Reinvented Growth Strategies - ($)

• 2025-01: DeepSeek & The Race to Zero: How AI Will Become a Zero-Cost Commodity (and What It Means for Big Tech) - ($)

• 2025-01: The S&P 500: Not As Overvalued As You Might Think? - ($)

• 2025-01: The Diversification Illusion of the S&P 500: A Warning for Passive Investors - ($)

• 2024-12: Playing Devil’s Advocate: What Could Derail Meta’s Growth? - ($)

• 2024-12: The “Mother of All Bubbles”: Are We Approaching a Market Top? - ($)

• 2024-11: The Bubble Quietly Forming in Quality Stocks! - ($)

• 2024-11: Why I’m Not Raising Cash Right Now! - ($)

• 2024-10: The Explosive Rally in Chinese Equities: Is This the Start of a Long-Term Bull Market? - ($)

• 2024-09: Google’s Business in the Face of AI Disruption: A Shareholder’s Perspective - ($)

• 2024-08: The Evolution of ETFs: Are Active ETFs a Blessing or a Curse? - ($)

• 2024-08: Unveiling Sam Altman’s True Net Worth: A Closer Look at His Investment Empire

• 2024-08: Navigating a Volatile Market: Why Now is a Stock Picker’s Paradise

• 2024-07: The $10 TRILLION Club: How High Can Microsoft, Nvidia & Apple Go?

5. Portfolio Updates

• 2026-01: Why I Sold a Position + The Big “Is Software Still Investable?” Question - ($)

• 2026-01: Annual Letter 2025

• 2025-11: Portfolio Update: Why I Sold One Stock and Doubled Down on Three Others - ($)

• 2025-10: Portfolio Update: More Reshuffling + Some Big Shifts - ($)

• 2025-10: Portfolio Changes Amid Yet Another U.S.–China Scare: Trading Down in Quality to Trade Up in Returns? - ($)

• 2025-09: Portfolio Update: Adding to Two Positions & One New Buy - ($)

• 2025-08: Why I Just Cut a Stock I Liked – and Took My Portfolio Down to 9 Positions - ($)

• 2025-07: Half-Year Investor Letter – July 2025

• 2025-07: Big Portfolio Changes: Rotating Out of Meta and Into More Asymmetric Bets - ($)

• 2025-06: Portfolio Update: Four Moves, One Theme ... - ($)

• 2024-12: Year-End Reflections: Lessons, Mistakes, and Successes from 2024

• 2024-12: Why I Own These 9 Stocks: Revealing My Portfolio for 2025 - ($)

In a weird way, it feels almost too well-known to be worth analyzing. Yet that familiarity may be precisely the reason why the stock has slipped into a blind spot. Since going public, the share price has largely gone nowhere and is currently down meaningfully from its highs.

And all of this despite being a business that has continued to grow steadily, generates attractive margins, and produces highly predictable cash flows; and will likely continue to do so for decades to come. The predictability of this business is arguably its biggest strength.

That disconnect – and the fact that UMG is trading at a 52-week low – is what caught my attention.

When I look at UMG today, I see a company that behaves more like a long-duration asset than a cyclical media business. Its catalog allows it to monetize intellectual property decades after its creation, turning music into something closer to infrastructure than entertainment. The company will still be earning money in 30 years from songs recorded half a century earlier. Few businesses have that kind of temporal leverage.

At the same time, UMG remains capital-light at its core, even though it needs ongoing investment to acquire new catalogs and nurture talent. The result is a business with an unusually long runway and unusually high visibility. That alone should make it interesting.

And yet, the market treats UMG as if it were a mature, low-growth company with limited upside. The stock has lagged peers in the broader audio and streaming ecosystem, such as Spotify, massively over recent years, which reinforces the perception that it is the “boring” part, the old guard, of the value chain.

But this perception ignores a deeper imbalance in how music is valued. Audio accounts for a large share of global media consumption, yet captures only a small fraction of industry revenues and earnings. In other words, music is everywhere, but monetization is still surprisingly thin.

That structural gap is not a short-term anomaly. It is a long-term opportunity. If music were even partially re-priced within the broader media economy, the implications for rights holders like UMG would be significant.

This is why UMG’s valuation feels difficult to reconcile with its fundamentals. The business combines mid-to-high single-digit growth with strong margins and durable cash flows, yet trades at a multiple that seems more consistent with a low-growth, lower-quality asset.

Even more striking, the value of its existing catalog alone appears to represent a substantial portion of its market capitalization. The market narrative around the stock is dominated by concerns about AI disruption and dependence on streaming platforms like Spotify, but those narratives may be oversimplified. They frame UMG as a vulnerable intermediary rather than as the owner of scarce, irreplaceable assets. We will primarily focus on these two narratives in this write-up and discuss the merit of them.

There is also a structural reason why this mismatch exists. UMG is listed in Europe, which limits its visibility among US-centric investors and reduces its inclusion in major growth-oriented portfolios. Global cultural relevance does not automatically translate into global investor attention. In practice, the European listing may contribute to a valuation that fails to reflect the company’s strategic importance and long-term economics. Ironically, the very fact that UMG is so well known as a cultural institution may have made it easier for the market to overlook it as an investment.

Subscribe now

The idea I want to explore is simple: UMG is not a hyper-growth story, but it might be something more interesting – a high-quality compounder that could as a “stabilizer” in your portfolio, a company with an exceptionally long runway, misunderstood by the market and priced accordingly.

If that is true, then the real question is not whether UMG will survive technological change, but whether the market has fundamentally misjudged the value of owning music itself.

Here’s an overview of some of the topics covered in this 23,000-word deep dive:

• A detailed look at UMG’s business model (products, customers, operations, etc.)

• Exploration of key growth drivers

• Analyzing unit economics and UMG’s diverse revenue streams

• A breakdown of UMG’s Total Addressable Market (TAM)

• A look at UMG’s competitive position in the global music industry and opportunities for continued streaming penetration.

• An assessment of UMG’s structural competitive advantages

• A risk assessment of who has the bargaining power in UMG’s relationship with major digital service providers (such as Spotify)

• Review of management, including leadership under Sir Lucian Grainge, compensation structures, and long-term incentives alignment.

• Examination of capital allocation and ownership, focusing on Bill Ackman’s stake and his impact on UMG’s long-term strategic direction.

• A deep dive into UMG’s financial health, addressing balance sheet risks, debt obligations, off-balance-sheet obligations, and long-term commitments.

• Consideration of AI as a risk or tailwind, with a focus on AI-enhanced music services like remixes and personalized versions, and their potential impact on UMG’s growth.

• Discussion of UMG’s upcoming U.S. listing and how it may increase demand, improve liquidity

• Bill Ackman’s investment thesis

• An assessment of valuation

• Analysis of strategic risks and opportunities, considering temporary vs. long-term factors like regulatory changes and partnerships with streaming platforms.

There’s even more! As always, I believe this is one of the most thorough analyses of the business you’ll be able to get your hands on.

Disclaimer: The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

High-Level Thesis: “Bam Bam Bam Bam Bam”-90 Second-Pitch

The full analysis starts here:

The rest of this post covers the aspects covered above (and more). If you’re serious about sharpening your investing edge, the full post (and all my previous premium content, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more) and powerful investing frameworks. is just a click away. Upgrade your subscription, support my work, and keep learning.

Subscribe now

Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

Read more

Its innovative treatments, particularly in the GLP-1 space, sparked tremendous optimism – so much so that Novo Nordisk’s stock surged to all-time highs, with investors seeing the company as a near-impervious growth story.

However, that optimism took a sharp turn in mid-2024. And the stock’s struggles have continued up until today. In the early months of 2026, when the company dropped a bombshell – a significant guidance cut for 2026, forecasting a sales and earnings decline between 5% and 13% – the stock dropped back to levels last seen in 2022.

This came as a shock to many who had grown accustomed to robust growth. The once-unfaltering stock price, which had enjoyed a remarkable rebound of over 30% in just a few weeks, suddenly fell off the cliff AGAIN.

Novo Nordisk is basically experiencing the worst drawdown in its public history – an eye-watering 69% crash that almost rivals the 1987 stock market collapse.

But what’s driving this (recent) volatility?

Several key events have recently played into the company’s deteriorating outlook.

• First, there’s the pressure from U.S. pricing, particularly stemming from the controversial “Most Favored Nation” pricing deal initiated during the Trump administration, which is set to hurt Novo Nordisk’s bottom line for the foreseeable future.

• Add to that the rising competition from Eli Lilly in the GLP-1 space, and things start to look a little more precarious.

• But perhaps the biggest threat is coming from a surprising source: compounders. Companies like Hims & Hers have entered the market with compounded versions of Wegovy, offering cheaper alternatives that directly compete with Novo’s blockbuster weight-loss drug. The compounding market, which had been relatively under the radar for most of Novo’s rise, is now gaining traction. This presents a unique set of challenges: not only is Novo facing direct competition, but it’s also dealing with an emerging legal and regulatory storm, which may pose a threat to the very patent protection that has allowed it to dominate the space.

In this write-up, I’ll break down how these pressures are impacting Novo Nordisk’s business, starting with the unsettling guidance cut and moving into the growing competition from Eli Lilly and copycat players.

We’ll also take a closer look at the stock’s technicals.

By the end of this post, you’ll have a deeper understanding of whether this volatility represents a temporary blip or signals a longer-term shift for Novo Nordisk.

Is this a company facing an existential crisis, or is it merely going through a necessary recalibration before it comes back stronger than ever?

Read more

Take a quick look at the one-day performance of some of the biggest video game companies, and it’s hard not to be struck by the magnitude of the declines. Nintendo, one of the most established names in the gaming industry, ended the day down by around 5%. Unity, the platform that powers many modern games, dropped a staggering 24%. Roblox, Ubisoft, and Take-Two Interactive saw similar declines, with losses ranging from 7% to 13%. CD Projekt, a company famed for its hit Cyberpunk 2077, too, was not immune, shedding roughly 8% of its value.

For a sector that’s traditionally known for its resilience—thanks to a loyal consumer base and consistent demand for new titles—these drops are hard to ignore. Investors are clearly rattled. But what could have triggered such a dramatic shift in sentiment?

Subscribe now

The catalyst, as it turns out, was a groundbreaking announcement from none other than Google. The tech giant revealed its experimental prototype, Genie 3, an AI-driven model capable of creating and exploring vast, infinite virtual worlds in real-time. This tool, a prototype for now, designed by Google DeepMind, allows users to generate immersive virtual environments and even design characters simply by describing them in text.

For those unfamiliar with the implications, this isn’t just another incremental leap in AI technology – it’s a potential game-changer for the gaming and entertainment industries. Genie 3 could enable anyone, regardless of coding experience, to generate and interact with complex, 3D worlds. Imagine the ability to create vast landscapes or intricate characters at the push of a button, with AI managing all the backend logic – something that traditionally required months of work from a team of skilled developers.

To get a sense for what’s possible with this powerful tool, take a look at the X thread below that curated ten illustrative examples:

And this is just a prototype. In the coming months and years, this technology is only expected to improve, accelerating the pace at which new content can be created and lowering the barrier to entry for game developers.

As noted by industry expert Jacob Navok, former executive at Square Enix, “World models present staggering and extraordinary opportunities for content creation […] [b]ut they also underscore the need for game engines and game design principles more broadly, which will provide the structure and stability for the output layer that is necessary for game development.”

This statement captures the very essence of the dilemma faced by traditional game developers today: while AI tools like Genie 3 promise to revolutionize the content creation process, they don’t yet provide the deterministic, rule-based structures that game engines offer to maintain consistent gameplay.

Naturally, the announcement sent shockwaves through the stock market. Investors, worried that AI-driven tools like Genie 3 could fundamentally disrupt the business models of traditional video game companies, began selling off their shares. After all, if anyone can create a game without the need for expensive developers, what’s the role of companies like Ubisoft or Take-Two Interactive? What protects their “right” to earn (superordinary) profits over the next few decades?

While some may argue that this reaction is knee-jerk, the underlying fear is clear: the introduction of AI tools in game creation is an absolute game-changer for the industry, a Gutenberg moment that will most definitely (?) significantly reduce development costs and could lead to a more fragmented industry. As the cost of creating a game drops, so too does the need for large, established studios. The risk of being replaced by smaller, nimble competitors is very real. And for investors, uncertainty is always unsettling.

As pointed out by Matt Bromberg, CEO of Unity: “Advances in large-scale ‘world models’... materially expand the frontier of interactive content creation. These models can generate high-quality, interactive, video-like experiences from natural language or minimal input. However, as they are probabilistic and non-deterministic, they’re not suitable on their own for games that require consistent, repeatable player experiences.”

This highlights an important distinction: while AI tools like Genie 3 can generate impressive visuals, they don’t yet meet the rigorous standards required for building a commercially successful video game. Yet …

But let’s not get ahead of ourselves. In the next chapter, we’ll explore whether these fears are justified or if this is just another case of market overreaction, giving long-term investors interesting opportunities to initiate positions in the likes of Nintendo, Sony, Unity, Take-Two, Ubisoft, CD Projekt, Roblox, etc.

Here’s what we will cover in this 6,500-word deep dive:

• The potential disruption AI poses to traditional game development, lowering barriers to entry and impacting established studios.

• How AI tools like Genie 3 can help reduce development costs and increase profitability for video game companies.

• The risk of AI creating increased competition, leading to the devaluation of major IPs and business models reliant on large-scale game production.

• The differences between single-game developers, diversified developers, platform owners, and game engine providers.

• How AI can complement existing game engines like Unity and Unreal, rather than replace them.

• Insights from Matt Bromberg (Unity) and Tim Sweeney (Epic Games) on the integration of AI into game engines.

• The potential for a Cambrian explosion of new game creators, with AI tools lowering the barriers to entry.

• Shifts in consumer behavior

• The evolution of business models

• The Future of AAA Games

• In what way Roblox is built differently

• Investor perception analysis: how perception risks could continue to suppress valuations of video game companies

1) Trap or Opportunity?

With the sudden plunge in video game stocks following Google’s unveiling of Genie 3, it’s clear that the market is divided. Investors are left grappling with one big question:

Is this the beginning of a new era in gaming, or are we witnessing a temporary overreaction?

For those who are more cautious, Genie 3 might look like the start of a storm that could change the very fabric of the industry. But for the more optimistic investors, the AI-driven world generation tools could prove to be an exciting innovation, offering new opportunities for growth and efficiency.

Let’s take a look at both sides of the argument.

The Bullish Case: A New Age of Cost Efficiency and Profitability

For those with a more optimistic view, Genie 3 and similar AI-driven technologies represent the next great leap forward in game development. If AI tools can simplify and accelerate the creation of complex virtual worlds, they could dramatically reduce the cost of game development – an expense that has traditionally been one of the highest barriers for many game studios.

Take Ubisoft, for example. In its most recent fiscal year, the company spent a significant portion of its operating budget on research and development (R&D). According to their latest annual report, R&D made up roughly 50% of the company’s total revenue. For large studios like this, the prospect of reducing R&D spending by even a fraction could have a dramatic impact on profitability. Imagine being able to cut development costs by 30%, 40%, or even 50% (or more?) with the help of AI-generated worlds, characters, and environments. For a gaming companies this could lead to much better profit margins.

Moreover, while the emergence of AI models like Genie 3 might seem like a threat to traditional game creators, it could actually complement their existing tools and processes. As Matt Bromberg, CEO of Unity, explains: “Rather than viewing world models as a risk, we see it as a powerful accelerator. Video-based generation... would further enhance [Unity’s] pipeline and materially improve the fidelity and speed of early-stage content creation.” In other words, rather than completely replacing game developers, AI tools could serve as a speed-up mechanism, helping teams create games and worlds (bigger, better, more asset- and detail-rich) faster, which could ultimately allow them to focus more on the creative and gameplay aspects of the experience – an area many developers have recently struggled to excel in.

In sum, AI could help video game companies generate more content, with fewer resources, leading to exceptionally higher returns on investment going forward (ROIIC), justifying significantly higher multiples. In this scenario, Genie 3 is not a disruptive force—it’s a tool that could enhance the profitability of established companies, making them even more attractive investments in the long run.

The Bearish Case: Increased Competition and Threatened IP

On the flip side, there are those who view the AI-driven revolution as a potential disruptor that could create new competitors and reduce the value of established gaming IPs. If anyone can create a game with minimal technical expertise, it opens the door for an explosion of new indie developers and small studios. These new entrants could flood the market with a wide variety of games, many of which may be created with little more than a text prompt and AI-generated assets. While some of these games may not be of the same caliber as AAA titles, the sheer volume of content could change consumer expectations and make it harder for traditional studios to justify their premium prices.

As highlighted by Jacob Navok, former exec at Square Enix, “World models... should lead to a dramatic increase in the number and quality of games developed. However, they also underscore the need for game engines and game design principles... which will provide the structure and stability for the output layer that is necessary for game development.”

Moreover, the emergence of cheap, AI-generated games could lead to a situation where players are less willing to pay $60 or $70 for a AAA game, when they could have access to equally enjoyable experiences for a fraction of the cost – or even for free. Imagine a world where a player can create a game of their own using an AI tool and experience it without spending a dime. This could pose a serious challenge to the traditional business model of the gaming industry, where revenue is largely generated through the sale of new titles, expansions, and/or in-game purchases.

A further risk to traditional game developers is the pressure to adapt to changing consumer behaviors. As more users create and share their own games, large developers may find it harder to maintain the same level of loyalty. The rise of microtransactions and live services in games like Fortnite has already changed the industry’s focus, making the creation of deeply engaging, long-term virtual worlds more important than ever (which is exactly why Nintendo, despite its lackluster graphics, remains so successful in my view). But if players start shifting their attention to AI-generated worlds, it could undermine the foundation that traditional developers rely on for steady, recurring revenue.

For investors with a more cautious outlook, these dynamics present a valid concern. While the potential for cost savings and efficiency gains exists, the long-term effects of AI on the competitive landscape could outweigh these short-term benefits. Capitalism is brutal. Where (lots of) money is to be made, competitors will emerge if there aren’t any structural barriers to entry.

They exist right now, but tools like Genie 3 could lower them meaningfully.

The risk of being overtaken by nimble competitors who simply produce better games, who can now produce games more cheaply and can produce games more on par with the likes of the major gaming studies (in terms of visuals, gameplay depth, etc.), or even disrupt the market entirely, is very real.

As a result, investors may want to approach the video game sector with more caution – and the stock price moves on Friday reflected that stance – particularly in the face of a rapidly evolving technological landscape.

Ultimately, the introduction of AI technologies like Genie 3 into the gaming industry represents both an opportunity and a potential risk. For the bullish investor, AI can drive efficiency, enhance profitability, and fuel innovation in game development. But for the bearish investor, it raises concerns about increased competition, disrupted business models, and the potential devaluation of established IPs.

While we can’t yet predict how this will all play out, one thing is clear: the video game industry is on the cusp of a major transformation. The rate of change just went up. Whether this will be a temporary bump or the start of a profound shift remains to be seen, but as with any new technology, there will be winners and losers. The key to success will be understanding how these shifts impact not just the technology itself, but the companies that rely on it – and most importantly, how these changes are reflected in the market’s perceptions and stock valuations. This is what we will cover next.

2) Not All Video Game Stocks Are Created Equal

As we dive deeper into the future of the video game industry, it’s essential to acknowledge that not all video game companies are in the same position. We saw indiscriminate selling in Friday’s trading session, which I believe was unjustified.

The rise of AI-generated content and virtual worlds might seem like a one-size-fits-all disruptor, but in reality, different types of companies within the gaming ecosystem will be impacted in vastly different ways. The landscape is far from uniform, and understanding these differences is key to identifying where the opportunities and risks lie.

Join the private WhatsApp community!

Discuss stock ideas, ask questions, and get behind-the-scenes thoughts in real-time.
Available exclusively for paid subscribers. Want in? Choose the annual subscription plan + reply with your number (more details in the welcome email).

Subscribe now

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

Read more

Sentiment could hardly be worse. Analysts have started to reflect this shift in tone. UBS recently downgraded Edenred from Buy to Neutral, from a 42€ price target to €19, citing regulatory uncertainty in Brazil and limited near-term visibility on earnings. The message seems to be that even after the sell-off, the market is not convinced that the worst is behind us.

This is precisely what makes Edenred so interesting. Not because the business is risk-free or misunderstood, but because the gap between perception and underlying economics has rarely been this wide. The Brazilian regulatory shock is very real. The guidance cut is real. The uncertainty is real, too. But the question is whether the current valuation already prices in a scenario that is materially worse than what the fundamentals imply.

Subscribe now

To answer that, I look at Edenred’s valuation again, updated my prior inputs, and looked at it from four different angles:

• First, a high-level valuation perspective using earnings and cash flow multiples.

• Second, an assessment of how analysts like UBS are currently valuing the business and what it means for the embedded downside risk.

• Third, a sum-of-the-parts analysis that separates regulated and unregulated profit pools and assigns them explicit values. Here, I conducted a scenario-based analysis that explores what Edenred could be worth under conservative, base case, and optimistic assumptions.

• Fourth, valuing Edenred through the lens of shareholder distributions.

We’ll discuss each valuation angle thoroughly further below, but before we get there, let me give you a brief business update.

Disclaimer: I own Edenred shares. The analysis presented in this blog may be flawed and/or critical information may have been overlooked. The content provided should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. I may own some of the securities discussed. The stocks, funds, and assets discussed are examples only and may not be appropriate for your individual circumstances. It is the responsibility of the reader to do their own due diligence before investing in any index fund, ETF, asset, or stock mentioned or before making any sell decisions. Also double-check if the comments made are accurate. You should always consult with a financial advisor before purchasing a specific stock and making decisions regarding your portfolio.

Quick Business Update Before We Get Into Valuation: Brazil – From Regulatory Shock to Legal Uncertainty

Before looking at valuation, it is worth briefly revisiting what actually happened in Brazil, because this episode explains most of the recent derating in Edenred’s share price.

In late 2025, the Brazilian government unveiled a reform of the Worker Food Program (PAT) that went materially further than what industry participants had expected, and caught both investors and the businesses themselves, who were in direct touch with regulators (or so they thought), off guard.

The proposed measures included…

• a cap on merchant fees at 3.6% (vs. an estimated 7% average),

• a shortening of reimbursement periods to 15 days (handicapping their float revenue; a key part of their model),

• a ban on rebates and indirect financial benefits, and

• the government also wants to implement “interoperability,” which effectively means merchants can accept all forms of cards and service providers, weakening the stickiness of vouchers.

Together, these changes will significantly compress margins and reduce float income, which is a meaningful contributor to profitability in the Brazilian benefits market.

Edenred reacted by cutting its FY2026 guidance from organic EBITDA growth of 2–4% to an expected decline of 8–12%. Importantly, the company did not change its medium-term outlook beyond 2026, suggesting that management views the impact as a reset of the earnings base rather than a permanent impairment of the growth trajectory.

Still, the magnitude of the guidance cut, coming just days after the Capital Markets Day, raised questions about visibility and regulatory risk.

Since then, the situation has become more complex rather than clearer. A Brazilian judge has temporarily suspended the reform as it applies to Edenred, although the government has signalled it will appeal. Edenred itself expects a definitive ruling only in late 2026 or early 2027. In other words, the company is operating in a prolonged period of legal and regulatory uncertainty, where the final economic impact remains difficult to quantify.

Two points are worth keeping in mind. First, Brazil represents around 19% of Edenred’s operating revenue, and only roughly half of that exposure relates to regulated employee benefits, with the rest not directly affected by the PAT reform.

Second, even in the worst case, the Brazilian business is unlikely to disappear. The more realistic scenario is a structurally smaller and less profitable market, combined with potential consolidation that could ultimately favour large incumbents like Edenred.

This is the backdrop against which the stock has been repriced. The downward trend shows NO signs of stopping.

The key question is therefore not whether Brazil is a headwind, but whether the current valuation already assumes a far more severe and widespread deterioration of Edenred’s economics than what the underlying business actually implies.

Valuation Angle #1: High-Level Overview

This is where it gets interesting

Become a paying subscriber to read the rest of this post and get access to all of my other research, including valuation spreadsheets, deep dives (e.g. well-known mid- and large caps such as LVMH, Duolingo, Meta, Edenred as well as more hidden gems such as Tiger Brokers, Digital Ocean, Ashtead Technologies, InPost, Timee, and MANY more), and powerful investing frameworks.

Subscribe now

Annual members also get access to my private WhatsApp groups – daily discussions with like-minded investors, analysis feedback, and direct access to me.

PS: Using the app on iOS? Apple doesn’t allow in-app subscriptions without a big fee. To keep things fair and pay a lower subscription price, I recommend just heading to the site in your browser (desktop or mobile) to subscribe.

Read more

That retracement is not dramatic in isolation, but it is telling. It suggests that the sentiment has shifted again slighty, and the market is no longer pricing Uber as a simple growth compounder. Instead, investors are increasingly forced to confront a deeper question:

What does Uber actually become in a world where autonomous vehicles move from science fiction to commercial reality? And if Google and Tesla become the dominant incumbents with defensible moats, is there still need for an aggregator

Rose Celine Investments raised the bear case on X in early January:

“Everyone keeps repeating the same aggregated demand argument and I understand why, because for a long time it was obviously true. $UBER owned demand, riders opened $UBER first, drivers were fragmented, and whoever controlled demand basically controlled the whole system.

That worked really well in a human driver world and it explains why $UBER became what it became. The problem is people are taking that exact same logic and just extending it forward without really stopping to think about what actually changes once autonomy becomes scaled. […]

If you own the cars and you’ve spent tens of billions building them and the entire ecosystem, are you really going to accept paying 20% forever just to ‘rent’ demand? And more importantly, after spending such a massive amount of capital are you going to accept $UBER coming back later and demanding 30% instead of 20% because they ‘own demand’?”

At a fundamental level, Uber’s operating performance has rarely looked stronger. Over the trailing twelve months, the company generated roughly $49.6 billion in revenue, about $4.6 billion in EBIT and around $8.7 billion in free cash flow (the FCF metric needs some major adjustments, though; we will discuss this in this analysis further below).

Margins have structurally improved compared to the past and the bull case argues that Uber only just started flexing its operating leverage and that there’s more upside on the profitability side: EBIT margins sit near 9 percent, free cash flow margins around 17 percent, and net income margins are elevated, partly due to one-off effects but still indicative of a business that has moved decisively out of its loss-making phase. Growth has not disappeared either.

Revenue has compounded at more than 35 percent annually over the past five years and still grew at roughly 18 percent over the last year. Other KPIs are also trending in the right direction: up!

The valuation picture reflects this duality. On a forward basis, Uber trades at roughly 20x next-twelve-month earnings, around 22x forward EV/EBIT, and just under 20x price-to-free-cash-flow. On trailing metrics, multiples look even lower, with a P/E near 10x and EV/EBIT below 40x.

If anything, these numbers suggest a market that is struggling to reconcile two opposing forces:

• a business that is scaling, monetising, and generating cash at increasing rates, and …

• a structural uncertainty about whether its role in the mobility ecosystem will expand or erode over the next decade+.

That tension is what makes Uber such a fascinating investment case right now. On the surface, the story looks almost too clean, the stock too cheap given its runway, embedded operating leverage, and user base. A global platform with hundreds of millions of users, improving margins, strong free cash flow, and multiple growth vectors across mobility, delivery, and local commerce.

But beneath that surface sits a more uncomfortable layer of questions that the market is clearly beginning to price in:

• If autonomous fleets scale meaningfully, who captures the economics of mobility?

• Do AV operators eventually bypass intermediaries like Uber, or do they end up relying on them even more?

• Does Uber’s network advantage strengthen in a fragmented autonomous world, or does it weaken once a few players reach “good enough” scale?

• How does leverage shift across geographies, where network effects are hyperlocal rather than global?

• And ultimately, is Uber’s current valuation optically cheap because the market is missing something – or because it is correctly discounting a future where the company’s take rate and strategic relevance are far less secure than they appear today?

• How should Uber investors think about Google’s 2.2 billion MAU distribution advantage?

• Also, which adjustments do we have to make to arrive at “true free cash flow” and how attractive is the current valuation?

These are not abstract questions. They sit at the intersection of technology, economics, and consumer behaviour. And they are exactly what I want to unpack in the analysis that follows.

Link to my initital analysis:

Why the AV Debate Starts with the Wrong Question

The debate around Uber in an autonomous-vehicle-dominated world is often framed as a contest between capital and demand. Autonomous fleet operators invest tens and tens of billions into vehicles, infrastructure, and AI stacks. Uber, in contrast, owns no fleets at scale and sits between supply and consumers. The intuitive conclusion is that the capital-intensive side should ultimately hold the leverage. After all, why would a company that spent enormous sums building autonomous fleets permanently hand over 20 percent of its revenue to a middleman?

I think this framing is intellectually coherent but incomplete. It implicitly centers capital providers rather than end consumers. Yet in most platform markets, leverage does not accrue to whoever spent the most money. It accrues to whoever controls the consumer’s default choice. Consumers do not care how much capital was required to build a system. In the app-based ridesharing space specifically, they care about thee things primarily:

• how fast a ride arrives,

• how reliable it is, and

• how much it costs.

If those conditions are satisfied, the underlying ownership structure becomes almost irrelevant from the user’s perspective.

“So in focusing on the sparse geographies, we’re really focused on three areas. It is on the expanding the availability of the product, increasing the reliability of the product, and then ensuring that we have the right product fit.

So for example, the wait and save product has been an excellent match for the sparse geographies because typically when you’re in a more suburban environment, you’re in a situation where you don’t mind waiting a little bit for your ride, which gives us the ability to find the right match and to compensate for the lower density of cars which may be in that market. So all of that is continuing to feed the flywheel, and we feel very excited about how sparse geographies are going to continue to provide growth for our U.S. market for many quarters to come.” - CFO Prashanth Mahendra-Rajah - Q3 call

Mobility makes this dynamic unusually brutal because switching costs are close to zero. Downloading another app takes seconds. Payment methods can be stored instantly – take you about five minutes or less. Users can compare wait times and prices with minimal friction.

In network theory, this is a textbook case of multi-tenanting: users participate in multiple networks simultaneously. When multi-tenanting is easy and credible substitutes exist, sustained margins above the cost of capital tend to be competed away unless strong barriers exist. If one autonomous fleet operator consistently earns extraordinary margins per ride, rivals have incentives to undercut pricing or improve service until those margins compress.

This is why the “fleet operators will dominate” narrative cannot be evaluated purely through the lens of capital intensity. Capital expenditure does gives companies some degree of leverage, but it does not automatically lead to switching costs and translate into pricing power. Pricing power emerges from consumers unable to switch, or more broadly, consumer preference. And consumer preference in mobility, or so I would argue, is narrow, pragmatic, and fickle.

Hence, Uber’s current scale matters in this context, because it shapes consumer habits. In Q3 2025, Uber reported 189 million monthly active platform consumers, 3.5 billion trips, and $49.7 billion in gross bookings, with trips up 22 percent year-over-year and adjusted EBITDA up 33 percent.

These are not the metrics of a platform in decline. They are the metrics of a marketplace still expanding at scale.

At the same time, management is explicit that the company’s strategic focus is shifting from single transactions to long-term relationships. As Dara Khosrowshahi put it, Uber is moving “from Trip experience to Lifetime experience,” deepening engagement across its platform and increasing cross-product usage.

“We’re deepening engagement across our platform with cross-platform consumers spend three times more and retaining 35% better than single product users.“

The real battleground is fighting for consumer mindshare; shaping consumer behavior.

Network Effect Characteristics

There is another layer often overlooked in the leverage debate: network effects in mobility are hyperlocal. A dense fleet in one city does not automatically translate into dominance elsewhere. Regulatory environments, road infrastructure, weather, labor markets, and consumer preferences differ sharply across geographies.

Uber itself acknowledges that growth dynamics vary by market, with sparse geographies expanding faster than dense urban centers and still far from saturation.

“So the sparse geography strategy, which we had talked about this originally, if you recall, this originally was an output of the work that we had led on focusing on how to increase our Delivery business. And in that analysis, and as we began to look at how we can make better progress on Delivery, we identified that there was more opportunity for us to continue to push on sparse geographies in the Mobility area. And the benefit that we’re seeing there really is first, it’s a very large footprint. So as we look across the globe here and similar for the U.S. our sparse geographies are actually growing at about 1.5x the rate of our denser market, and the penetration opportunity in these sparser markets continues to be quite high. We -- our rough take is that we’re maybe 20% into what the opportunity is on the sparse market. So still lots of upside there.” - CFO Prashanth Mahendra-Rajah - Q3 call

This means that leverage of the fleet providers – if it will be material in the first place – will not be global and uniform. It will be local and conditional. I find it very unlikely that Uber will go out of business entirely.

Once you accept that premise, the question stops being …

“Does Uber win or lose in an AV world?”

… and becomes …

“Under what conditions does Uber remain the default interface in each local market, and under what conditions do autonomous fleet operators bypass it?”

That is where the economics start to get interesting.

When Aggregators Matter – and When Not … + A Nuanced Look at the Nvidia Partnership

The value of an aggregator is not constant. It rises with fragmentation and falls with consolidation. We discussed this in our Trainride analysis.

Imagine a city with two autonomous fleet operators. Comparing prices and wait times across two apps is manageable. Add a third operator, and friction increases. Add five or six, and manual comparison becomes annoying enough that users start looking for a single interface that abstracts complexity away by … you guessed it: aggregating supply and data.

Read more